Luxury jet makers battle over lucrative spy plane niche

May 13, 2021 | 4:42 pm

Gulfstream-S102B-Korpen-Sweden---Air-Force — Image via Peter Bakema/Wikimedia Commons

MONTREAL/PARIS — Last month, a ghostly gray business jet took off from central Sweden and headed across the Baltic on a routine spying mission.

The converted Gulfstream, caught on a tracking website, was flown by the Swedish Air Force and patrolled an area thick with Russian radar signals off the militarized coast of Kaliningrad.

Apart from a couple of unobtrusive bulges underneath, Sweden’s two Gulfstream-based S102B Korpen spy planes look like any other sleek corporate jet.

But inside, the Swedish jets and a growing fleet of newer corporate aircraft contain the eyes and ears of a relentless intelligence war.

From the South China Sea to the Middle East and the Baltic, governments are eyeing “special mission” business jets capable of looking or listening at potentially lower running costs than converted passenger or military planes.

It’s the latest chapter for a discreet market worth an estimated $3 billion to a handful of corporate jet specialists and the Israeli, European, and US arms firms that supply advanced intelligence systems.

The rising demand for small jets with systems once reserved for bigger planes has energized a market led by General Dynamics subsidiary Gulfstream, with Canada’s Bombardier and France’s Dassault Aviation snapping at its heels.

“A key area for growth is in signals and electronic intelligence,” said defense analyst Francis Tusa.

“This is increasingly viable on smaller aircraft because of improvements in electronics and their reduction in size. It’s all about processing power and the size of electronics.”

‘NUMEROUS OPPORTUNITIES’
The trend accelerated last month when Sweden’s Saab paired its new-generation GlobalEye early warning system, carried on Bombardier Global business jets, with Gripen warplanes in its bid for a crucial Finnish fighter contest.

Missions vary widely from intelligence planes that passively scoop up radar and listen to communications to the most advanced early warning aircraft that actively scan or watch for threats.

“It’s the difference between listening out for the sound of a burglar or shining a bright torch,” a defense executive said.

All eyes are now on South Korea, which may search for new early warning planes later this year to augment its Peace Eye fleet based on Boeing 737s, analysts and industry sources said.

It is already looking for target-tracking or “listening” jets, prompting US defense giant Raytheon to propose putting consoles and artificial intelligence on Bombardiers.

While such orders are small in volume, they are more profitable and resistant to crises such as the coronavirus disease 2019 (COVID-19) pandemic.

“Even as demand generally softened due to the pandemic, Textron Aviation saw a slight increase in special-mission orders in 2020,” its defense head Tom Hammoor said. Its Beechcraft King Air turboprops carry out reconnaissance and law enforcement.

Basic corporate jets can cost anywhere from $20 million to $60 million but the price tag for converting them into spy planes rises quickly and could surpass $200 million for a high-end product, industry sources say.

Heavily exposed to fluctuating demand for civil business jets after quitting the rest of the aerospace industry, Bombardier says it is now dedicating more resources to military missions.

“We’ve been approached (with) numerous opportunities … I would say in the last couple of months,” Bombardier Chief Executive Eric Martell said in response to a Reuters query.

Jetmakers do not disclose data for sales of special-mission aircraft. The market is estimated by U.S. research firm JETNET to be about 5% of annual large-cabin business jet deliveries.

According to JETNET, Gulfstream is the leader in business jet deliveries to government customers, competing with rivals such as Bombardier and Dassault, which recently clinched orders for seven Falcon 2000 Albatros planes for the French Navy.

LUXURY TO SPYCRAFT
But Gulfstream is ending production this year of its popular G550 corporate jet, which was recently delivered to Israel as a surveillance aircraft, creating a potential opening for rivals.

“For Bombardier and (Dassault’s) Falcon, much depends on what Gulfstream does to position a new model to take the place of the G550 as the dominant special-mission business jet,” Teal Group analyst Richard Aboulafia said.

“If they don’t have a replacement that’s as suitable and popular … then Bombardier and Falcon gain.”

Gulfstream said orders will shift to its newer models. Dassault had no immediate comment.

The business of turning luxury into spycraft is not new, dating back to a Grumman executive turboprop in the 1960s.

But demand for “missionized” business jets is accelerating as radars get smaller and planes fly further.

US jetmaker Boeing argues only its larger 737-based platforms have the all-round capability needed for demanding missions. Its P-8 maritime patrol version also carries weapons.

Systems supplier L3Harris Technologies, however, said large-cabin business jets were used in most projects over the last five years in areas such as multi-role surveillance.

Sean Stackley, president of its Integrated Mission Systems business, said it was looking at more than half a dozen new sales campaigns, including with two NATO countries.

Even as corporate airframes equip for war, there is talk of pressure from another emerging rival: long-endurance drones.

Northrop Grumman’s Global Hawk, for example, is used for intelligence gathering over water and coastal areas and costs about $130 million, according to industry experts https://reut.rs/3eBylD3.

“The main future threat to this market is from unmanned aerial vehicles and to a lesser extent low-earth-orbit satellites,” Mr. Tusa said. “But they are not cheap. So a business jet solution sits well with that.” — Allison Lampert and Tim Hepher/Reuters

China planning new crackdown on private tutoring sector — sources

May 13, 2021 | 4:05 pm

HONG KONG/BEIJING — China is framing tough new rules to clamp down on a booming private tutoring industry, aiming both to ease pressure on school children and boost the country’s birth rate by lowering family living costs, sources told Reuters.

The clampdown will also have the effect of cooling China’s cutthroat tutoring market for kindergarten through to the 12th grade, or K-12 pupils, that has grown exponentially in recent years to around $120 billion.

At least one major company providing tutoring services has put a billion-dollar private fundraising round on ice amid increasing scrutiny from Beijing and looming industry uncertainty, according to three separate sources.

The changes being drafted by the Ministry of Education and other authorities target before- and after-school K-12 tutoring, three people with knowledge of the matter told Reuters.

One source said the draft rules could be unveiled as early as by end-June. All three sources requested anonymity as they were not authorized to speak publicly.

Under the planned rules, on-campus academic tutoring classes will be banned, as will both on and off-campus tutoring during weekends, two of the people said. Regulators will also clamp down on off-campus tutoring, in particular for English and math, they added, restricting class times on weekdays.

More than 75% of K-12 students attended after-school tutoring classes in 2016, according to the most recent figures from the Chinese Society of Education, and anecdotal evidence suggests that percentage has risen.

As well as protecting sleep-deprived students, Beijing sees the changes as a financial incentive for couples to have more children as it seeks to shore up a rapidly declining birth rate, the sources said.

“It’s rather urgent to lessen students’ workloads, and reduce the financial burden on their parents who are becoming reluctant to have more kids,” one source said.

China’s population grew over the 10 years to 2020 at the slowest pace in decades, the country’s latest census showed on Tuesday, raising fears its dwindling workforce will be unable to support an increasingly elderly population.

Living costs in big cities, with education accounting for a big chunk of that, have deterred couples from having children.

The new rules would seek to limit fees charged by companies for tutoring, one of the sources told Reuters.

The ministry didn’t immediately respond to Reuters request for comment.

INDUSTRY ON NOTICE
The K-12 tutoring industry would grow to nearly 1 trillion yuan ($155 billion) in 2025, up from around $120 billion in 2019, according to market researcher Qianzhan.

However, Beijing’s increasing oversight is already hitting company stocks and fundraising plans.

The planned rules would add to restrictions imposed in March, including a ban on live-streamed classes for minors after 9 p.m., a crackdown on advertising, and a ban on academic tutoring course offerings for pre-school kids.

Online education startup Yuanfudao, backed by tech behemoth Tencent, has suspended preliminary talks to raise around $1 billion which would have valued the company at $22 billion, said the three separate sources.

Yuanfudao, which was valued at $15.5 billion in a funding round last October, started informal talks with investors in December, one of the sources said, adding plans were put on hold in March in response to increasing regulatory oversight of the sector.

Yuanfudao, which along with main rival Zuoyebang had raised billions of dollars during China’s coronavirus disease 2019 (COVID-19) lockdowns as students were pushed online, did not respond to a comment request.

Yuanfudao and Zuoyebang were fined a maximum penalty of 2.5 million yuan ($389,420) each by regulators on Monday over false advertising.

A source told Reuters that a large state broadcaster was told by regulators last month to remove TV commercials from two players, New Oriental Education & Technology Group and TAL Education Group that they had placed earlier.

Shares in New York-listed New Oriental and peer TAL have fallen 23% and 26%, respectively, this year, compared to a 13% gain in the benchmark NYSE composite index.

The stocks ended down 5.8% and 2.1%, respectively, on Wednesday.

New Oriental said it had not placed any TV advertisements in the past two months and declined to comment on the potential tightening regulations. TAL didn’t respond to a request for comment. — Julie Zhu and Yingzhi Yang/Reuters

Ohio governor offers chance at $1 million prize to get vaccinated

May 13, 2021 | 2:50 pm

Syringe-dollar — Photo by Marco Verch/Creative Commons 2.0

As US political leaders grow increasingly desperate to persuade Americans to get the coronavirus vaccine, Ohio Governor Mike DeWine on Wednesday topped offers of baseball tickets and beer with a $1 million prize drawing.

Mr. DeWine, a Republican, said five Ohio residents would win the money in once-a-week drawings for adults who have received at least one dose of the now-plentiful vaccines. The funds will come from federal pandemic relief funds.

“I know that some may say, ‘DeWine, you’re crazy! This million-dollar drawing idea of yours is a waste of money,’” the governor said on Twitter. “But truly, the real waste at this point in the pandemic — when the vaccine is readily available to anyone who wants it — is a life lost to COVID-19.”

Roughly 117 million Americans, more than one-third of the US population, had been fully inoculated as of Wednesday, according to US Centers for Disease Control and Prevention (CDC) data.

The pace of vaccinations has slowed in recent weeks due to ambivalence or skepticism about the medication and declining infections. The number of Americans seeking vaccinations has dropped by a third in recent weeks, according to the CDC.

New Jersey and Connecticut have made deals with bars and brewpubs to offer a free drink to the newly vaccinated. Maryland state employees who get inoculated are offered $100.

Last week, New York Governor Andrew Cuomo said the Mets and Yankees baseball clubs would hand out free tickets to fans who got inoculated at their parks before games.

Many US states were expected this week to begin inoculating children aged 12 to 15 with the vaccine manufactured by Pfizer Inc. and BioNTech SE after a CDC panel approved the plan earlier on Wednesday. — Dan Whitcomb/Reuters

India’s prized investment grade status hanging by a thread

May 13, 2021 | 2:14 pm

LONDON — India’s devastating coronavirus disease 2019 (COVID-19) crisis is making investors question more than ever whether after years of debt accumulation and patchy progress on reforms, a country touted as a future economic superpower still deserves its “investment grade” status.

A spate of downgrades last year had already left India’s investment grade credit ratings hanging by a thread and the severity of the current virus wave is making the main agencies, S&P, Moody’s and Fitch agitated again.

All three firms have either cut — or warned they could cut — the country’s growth forecasts in recent weeks and that government debt as a share of GDP will jump to a record 90% this year.

In that respect though, the world’s second most populous country has long been an anomaly.

The median debt level for countries Fitch has in the BBB bracket — India is BBB — and on a downgrade warning with both Fitch and Moody’s — is currently around 55% and only 70% even for those languishing at the lowest depths of ‘junk’ grade.

With COVID-19 pushing up debt almost everywhere and the ratings firms signaling they will wait for this latest wave to ease before any judgements, investors who buy rating-sensitive assets like bonds are making their own calls.

“We still see India as investment grade,” said NN Investment Partners’ head of Asian Debt, Joep Huntjens, who thinks the country’s economy will bounce back quickly. “But we do think there is at least a 50/50 chance that at least one rating agency downgrades, probably next year.”

With calls growing for another national lockdown to tackle the new virus surge, plenty of others are wary too.

JPMorgan says rating agencies are making “a leap of faith” by holding fire at the moment. M&G’s Eldar Vakhitov says his firm’s models have been flagging a downgrade, while UBS points out India will soon have the third highest debt level among big emerging markets after junk-rated Brazil and Argentina.

UBS analysts also estimate India needs to grow at least 10% a year for public debt to stabilize and come down. It hasn’t got anywhere near that since 1988, World Bank data shows. Last year’s full lockdown saw the economy contract 24% in the first quarter and Moody’s said this week it expects growth to settle at around 6% longer term.

“We do see the risk that it (a downgrade) can definitely happen,” said UBS’s head of emerging market strategy Manik Narain. “It seems more a question of when rather than if.”

ANOTHER BRIC TO FALL?
Neither India’s finance ministry nor its central bank responded to requests to discuss the risk of a downgrade but, as Brazil and South Africa have experienced, becoming a “fallen angel” — as a demotion to junk is known in rating agency parlance — can set off a wave of problems.

It automatically excludes government or corporate bonds from certain high-profile investment indexes, which means conservative funds — active managers as well as passive “trackers” — sell out, aggravating the situation.

India’s government debt is not yet in most of those indexes, so the big issue will be the roughly $40 billion to $45 billion worth of investment grade corporate debt that is also likely to get cut.

NN’s Mr. Huntjens thinks around 90% of Indian IG corporates would be hit and while giants like Reliance might be spared, India’s 7.4% share of JPMorgan’s Asia Investment Grade Corporates Index means there would be plenty of selling.

CHASTENING
If a cut does come, it wouldn’t be the first time India has lost investment grade status. It was first stripped in 1991 just a year after getting its initial S&P rating as a balance of payments crisis hit.

A repeat now though would be a chastening moment for its nationalist leader Narendra Modi who rallies supporters on promises to advance India on the world stage and compete with the likes of China.

While it has built up a healthy stock of currency reserves, its huge population of 1.4 billion means it still has the lowest prosperity level of any investment grade country when measured by GDP per capita of $2,164. China’s figure is nearly $13,000.

Subhash Chandra Garg, India’s former economic affairs secretary, acknowledges the government’s double-digit deficit and overall debt position are “bad,” but he doesn’t think the ratings firms will cut again.

“A debt-to-GDP ratio of 90% is certainly a matter of great concern and these things cannot go on,” Mr. Garg said. “But the fundamental view about India is that it is not a basket case, it is a strong economy.”

“In the end the debt levels need to come down and that can only happen if growth remains strong,” NN’s Mr. Huntjens added. “And it can’t just be based on (government)stimulus because then the debt just rises even higher.” — Marc Jones/Reuters

Bitcoin ticks back in Asia after Musk tweet sent price down 17%

May 13, 2021 | 1:29 pm

TOKYO/HONG KONG — Bitcoin rebounded to about $50,000 in Asian trading on Thursday after plunging as much as 17% after Elon Musk tweeted Tesla Inc. had stopped accepting bitcoin to purchase its vehicles due to climate concerns.

The price of the world’s largest cryptocurrency dropped from around $54,819 to $45,700, its lowest since March 1, in just under two hours following the tweet shortly after 2200 GMT. It recovered about half of that drop early in the Asian session, and last traded about $50,196.

Ether, the world’s second-largest cryptocurrency, followed a similar pattern, also dropping 14% to touch a low of $3,550, before bouncing back to about $3,965.

“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,” Mr. Musk wrote.

Tesla’s announcements earlier this year that it had bought $1.5 billion of bitcoin and that it would accept it as payment for cars has been one factor behind the digital tokens’ surging price this year.

As a result, Mr. Musk’s comments roiled markets even though he said Tesla would not sell any bitcoin and would resume accepting bitcoin as soon as mining transitioned to more sustainable energy.

“The issue (of huge energy use by bitcoin miners) has been long known so it’s nothing new. But taken together with Musk’s recent comments about dogecoin, his latest comments seem to suggest his passion for cryptocurrencies may be waning,” said Makoto Sakuma, researcher at NLI Research Institute in Tokyo.

A broader selling of risk assets in traditional markets was another factor in the plunge, said Jeffrey Wang, Vancouver-based head of Americas at Amber Group, a cryptocurrency service provider.

“I don’t think everything is selling off just because of this news. This was kind of the straw that broke the camel’s back in terms of adding to the risk sell-off,” he said.

On Wednesday, the S&P 500 dropped 2.1%, and the Nasdaq Composite lost 2.7%. Smaller cryptocurrencies were less affected by the news.

“Interestingly enough, altcoins are performing well. The reason given in the tweet is fossil fuel use for the mining of BTC, but most cryptocurrencies have already found more efficient ways to do that and therefore outperformed,” said Justin d’Anethan, sales manager at Hong Kong-based head of exchange sales at Diginex, a digital asset company.

The bitcoin dominance index, a ratio of bitcoin’s market cap to the total market cap of all cryptocurrencies dropped further to 42, its lowest level since June 2018.

A figure of 100 would indicate all cryptocurrency holdings were bitcoin. — Kevin Buckland and Alun John/Reuters

Magnitude 5.8 Mindoro earthquake felt in capital

May 13, 2021 | 1:00 am

A MAGNITUDE 5.8 earthquake struck north of the island province of Occidental Mindoro on Wednesday morning, with various intensity levels of up to 4 felt in the parts of the capital region.

There were no casualties or major infrastructure damage reported in Occidental Mindoro, located off the southwestern side of mainland Luzon.

The regional police office’s spokesperson, Lt. Col. Imelda Tolentino, said there were no immediate reports of injuries or deaths from their field units.

“No recorded damage to properties and casualties during the said

earthquake,” she said in a message via Viber.

The province’s disaster risk management office also did not report any damage or casualties.

The tremor was recorded at 9:09 a.m. with a depth of 106 kilometers. Its epicenter was near the town of Abra De Ilog.

Intensity 5 was felt in Lubang, Occidental Mindoro; Calamba City; Calatagan, and Calaca in Batangas.

Intensity 4 was recorded in other parts of Batangas, Bataan, and Manila City.

Other cities in Metro Manila recorded intensity 3, including Makati, Muntinlupa, Mandaluyong, Pasay, Pasig, and Quezon City. — with a report from Emmanuel Tupas/PHILSTAR

BSP maintains key rate at record low

May 13, 2021 | 12:35 am

The Bangko Sentral ng Pilipinas on Wednesday left its key interest rate unchanged at a record low. — REUTERS

THE BANGKO SENTRAL ng Pilipinas (BSP) held its key interest rate at a record low for a fourth straight meeting on Wednesday, as it continues to support the economy’s recovery from the pandemic.

The Monetary Board maintained the overnight reverse repurchase rate at a historic low of 2%, in line with expectations of 15 out of 17 analysts in a BusinessWorld poll last week. Both the lending and deposit rates were also kept at 2.5% and 1.5%, respectively.

“On balance, the expected path of inflation and downside risks to domestic economic growth warrant keeping monetary policy settings steady. The Monetary Board believes that sustained support for domestic demand remains a priority for monetary policy, especially as risk aversion continues to hamper credit activity despite ample liquidity in the financial system,” BSP Governor Benjamin E. Diokno said on Wednesday.

The BSP’s decision to keep rates steady comes a day after release of disappointing first-quarter gross domestic product (GDP) data. For the first three months of 2021, GDP shrank by an annual 4.2%, keeping the economy in a recession for a fifth consecutive quarter.

“At the same time, the Monetary Board expects the domestic economy to continue to recover in the coming months, aided by the Government’s targeted fiscal interventions and the sustained rollout of its vaccination program. Improved prospects overseas should also support the outlook for domestic economic activity,” Mr. Diokno said.

However, he warned the recent surge in coronavirus disease 2019 (COVID-19) infections and renewed restriction measures are hurting market confidence and poses risks to domestic demand.

“Looking ahead, the BSP affirms that maintaining an accommodative stance should quicken the economy’s transition toward a sustainable recovery,” Mr. Diokno added.

BSP Deputy Governor Francisco G. Dakila, Jr. said the central bank will keep a close eye on data to assess when to approach normalization of policy as economic conditions improve.

“It is very important to not do the exit process prematurely especially when economic growth can still be quite subject to uncertainty. We will be waiting for further data and looking at firmer signs that economic growth is strong and sustainable,” Mr. Dakila said.

“Monetary policy works with a lag, and that lag tends to be longer at times of uncertainties like in current episodes.”

Bank lending has been tepid in the previous months and has declined for the fourth straight month in March by 4.5%. This, as banks remained risk-averse while borrowers continued to have debt servicing difficulties.

“We expect bank lending to recover by the third quarter as base effects from last year and with demand for credit returning as the economic recovery gets under way,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.

TAMER INFLATION SEEN
Mr. Diokno said the BSP is now seeing a tamer, within-target inflation this year due to the impact of non-monetary interventions. Malacañang issued Executive Order (EO) 128 which reduced tariffs on pork imports and EO 133 which increased the volume of pork imports, as part of efforts to stabilize pork supply as the domestic hog industry continues to struggle with the African Swine Fever outbreak.

“Latest inflation forecasts indicate that inflation is likely to settle within the target range in 2021 and 2022… The risks to the inflation outlook are also broadly balanced. The Monetary Board emphasizes that the timely implementation of approved non-monetary measures will be crucial in mitigating further supply-side pressures on meat prices and inflation,” he said.

The BSP lowered its inflation outlook this year to 3.9%, from a previous estimate of 4.2%. On the other hand, the forecast for 2022 was raised to 3%, from 2.8% previously. This will put inflation back within the BSP’s 2-4% annual target range.

“Downward revision [for 2021] can be attributed to the following factors: impact of lower tariffs on the price of pork, lower-than-expected inflation that we saw both for March and April, and the impact of the first-quarter GDP outturn and the implication of that on economic activity for the first half of the year, as well as the continued appreciation of the peso,” Mr. Dakila said.

Upside risks to the inflation outlook include higher global oil prices and non-oil prices, he added.

Inflation is likely to remain “slightly elevated” in the second quarter but is expected to decelerate by the second half of the year due to the measures done by the National Government to resolve the supply problem on meat products, BSP Department of Economic Research Senior Director Zeno R. Abenoja said.

For 2022, Mr. Dakila said the higher inflation expectation can be attributed to the “impact of increases in crude oil prices as well as faster prospects for domestic economic growth.”

“Right now, based on futures prices and assessments of international organizations, we think the Dubai crude oil prices could average a little over $63 in 2021 (from $61.37 per barrel previously). For 2022, it will be about $61 per barrel (from $57.79),” Mr. Abenoja said.

Alex Holmes, an economist from Capital Economics, said he expects the central bank to cut rates anew when inflation settles.

“Provided inflation does begin to fall back later in the year, then rate cuts are likely in the second half of the year,” Mr. Holmes said. — Luz Wendy T. Noble

Q1 PEZA investment approvals rise 54%

May 13, 2021 | 12:34 am

worker-electronics-manufacturing — REUTERS

By Jenina P. Ibañez, Reporter

INVESTMENT PLEDGES approved by the Philippine Economic Zone Authority (PEZA) increased by almost 54% in the first quarter after coming off a low base last year.

PEZA in a report on Wednesday said that investments went up 53.87% to P25.382 billion based on 57 newly approved projects.

The investment promotion agency saw approved investments slide by nearly 30% in the first quarter of 2020, after its board failed to meet during the initial strict lockdown aimed at containing the coronavirus disease 2019 (COVID-19) pandemic.

The investments approved so far this year could generate around 5,601 jobs.

Among the 57 projects, 43 will be in Luzon, while 10 will be in Visayas and 4 will be in Mindanao.

For those registered as business enterprises, 22 are export projects, while 15 are for information technology and seven are for facilities. Three of the projects are for logistics, while there is one project each for utilities and tourism.

The remaining eight projects are for economic zone development.

PEZA in mid-April found that 90% of its companies continued to operate amid the renewed lockdown restrictions. The manufacturing sector is 94% operational, while outsourcing operations are at 84%.

Exports of companies registered at ecozones increased by almost 16% to $14.93 billion in the first three months of 2021.

“Employment in ecozones has also increased to 2.94% which is equivalent to 1.58 million workers compared to 1.53 million workers a year ago,” the agency said.

PEZA Director-General Charito B. Plaza said that ecozones continue to operate while upholding health protocols.

“With the approval of new projects and increase in the investments and exports in the first quarter of 2021, this proves that PEZA is unfaltering in keeping the Philippine economy afloat and being on top of its game in performing its mandate, mobilizing the country’s investment competitiveness, and creating employment opportunities for many Filipinos,” she said.

Ms. Plaza had said that PEZA approved a P1.5-billion Israeli-Filipino investment to manufacture COVID-19 oral vaccines in the Philippines.

The Savepoint Biotech, Inc. and the Israeli state funded MIGAL Galilee Research Institute partnership will put up manufacturing operations in the Pampanga Economic Zone that would supply medical products to Asia, she said.

Investment approvals from the Board of Investments — which accounts for the bulk of planned projects registered with investment promotion agencies — went up by 66% to P138 billion in the first quarter.

Gov’t eyes credit rating system for LGUs by 2022

May 13, 2021 | 12:33 am

THE GOVERNMENT is working on establishing a credit rating system for local government units (LGUs) by next year, as part of efforts to encourage them to issue bonds to raise funds for development projects.

State-run lender Development Bank of the Philippines (DBP) said in a statement on Wednesday that it is working with the Department of Finance, state regulators and multilateral banks to set up the proposed LGU credit rating organization. It will be similar to how credit rating agencies rate the viability of investments in countries and companies in the global debt market.

“DBP would establish a viable risk model that is flexible, pragmatic and forward-looking,” DBP President and Chief Executive Officer Emmanuel G. Herbosa said.

In an e-mailed response to questions, a DBP representative said they plan to launch the system by 2022 but declined to disclose other details.

Mr. Herbosa in the statement said the system aims to provide the bond market with credible risk indicators in assessing LGU bonds, along with ample data of their past issuances. It could also help boost confidence in the debt papers issued by LGUs and eventually improve the risk appetite of investors, he said.

“We expect a significant increase in development initiatives nationwide once the LGU Bond Market has gained firm footing as it accords a substitute mode of financing,” he added.

The DBP chief also believes that the credit rating system can help LGUs diversify their funding sources based on their needs, financial maturity, and the capacity to generate revenues.

Latest data showed the Bureau of Local Government Finance (BLGF) issued 50 certificates of net debt service ceiling and borrowing capacity to LGUs in April, covering P10.658 billion of total loans against their overall borrowing capacity of P23.962 billion.

Last month’s total was more than double the P4.479 billion that the local government borrowed in April 2020.

From January to April, LGUs borrowed P38.526 billion through 155 certificates issued, as against their total capacity of P92.44 billion. This climbed by 110% from P18.3 billion it logged in the same period last year.

Mr. Herbosa said local governments can tap the bond market as a stable source of finances for its infrastructure and social development projects to lessen heavy reliance on their budgets from the National Government through the internal revenue allotment (IRA).

Once all LGUs are rated, he said the state-run bank can assist them with marketing efforts and extend strategic support.

“We shall continue to explore innovative and sustainable financing solutions so that communities can continue to recover and rebuild from the crippling effects of the public health crisis,” the DBP official added.

Late last year, Finance Secretary Carlos G. Dominguez III told local governments to maximize their borrowings in order to finance programs and projects, and boost the local economy. As of 2019, the majority of the local units still have 80% available borrowing capacity, and 63% of cities and municipalities do not have existing debt, based on official data.

Sought for comment, the BLGF, Union of Local Authorities of the Philippines, and the leagues of provincial, city and municipal treasurers did not respond to queries at the deadline time.

Last year, the DBP established a P1-billion interest rate subsidy program for the loans taken out by LGUs to help them finance their relief programs and recovery measures. — B.M.Laforga

PHL economy will struggle to recover — Fitch Solutions

May 13, 2021 | 12:32 am

The Philiwppine economy shrank by 4.2% in the first quarter, the fifth consecutive quarter of decline since the pandemic began. — PHILIPPINE STAR/ MICHAEL VARCAS

THE PHILIPPINE ECONOMY will likely “struggle to recover” this year amid a “third wave” of coronavirus disease 2019 (COVID-19) infections, renewed lockdown restrictions in the capital region, and a snail-paced vaccination program, Fitch Solutions said.

Think tank Fitch Solutions, in a note on Wednesday, trimmed its Philippine gross domestic product (GDP) growth projection to 5.3% this year, from an earlier 5.8% forecast.

“We at Fitch Solutions believe the Philippines economy will continue to struggle amid its difficulties controlling the spread of COVID-19 and normalizing economic activity. The Philippines has been battling a rampant third wave of COVID-19 cases, which looks set to delay the economic recovery further,” the note read.

The think tank also cut its 2022 GDP growth forecast for the Philippines to 6.5%, from the previous 8.2% projection.

Fitch Solutions said the country’s overall economic output in nominal terms will remain 11.5% lower than its pre-crisis trend level by 2025.

Following the steeper-than-expected 4.2% slump in the first quarter, Fitch Solutions said the extended lockdowns in Metro Manila and its adjacent provinces will “weigh substantially” on the second-quarter GDP and further stall the economy’s recovery.

“The Philippines is highly vulnerable to lockdowns given its significant dependence on domestic activity for growth. Constraints on domestic activity are likely to be in place through the rest of 2021, but given the recent outbreak, we now expect these to be more stringent than we had previously assumed,” Fitch Solutions said.

Growth in household consumption will be slower at 4% from its previous forecast of a 4.5% expansion, it noted. Savings among Filipino families will remain elevated during the prolonged crisis and tight labor market.

High inflation and a slowdown in the manufacturing sector could further weigh on household consumption, but it may find support from a rebound in remittance inflows as the global economy recovers.

Muted household spending will be partially offset by the expected 7% growth in government spending, Fitch Solutions said. Meanwhile, weak domestic demand will drag investments as capital formation is now only seen growing by 10% this year from 14% previously.

“We continue to expect public sector support to spark a rebound in investment activity but the disruptions from lockdowns and weakened business sentiment will hamper policymakers’ efforts,” the think tank said.

Meanwhile, net exports could also be a drag this year due to higher prices of international goods and the expected rebound in imports.

The Development Budget Coordination Committee (DBCC) is set to meet on May 18 to review current growth targets and other macroeconomic assumptions, according to the Budget department.

The interagency body set a 6.5-7.5% growth target for 2021 in its previous meeting in December, and a higher goal of an 8-10% expansion in 2022.

Economic managers had said this year’s growth will likely be slower than the initial target because of the impact of the extended lockdowns.

In a related development, Asian Development Bank (ADB) Economist Shu Tian said in a webinar on Wednesday that developing Asian economies should aim for a “green” and sustainable economic recovery, as countries like the Philippines are highly vulnerable to the risks of climate change.

Ms. Tian said the Asia-Pacific region will need to invest at least $1.5 trillion each year in sustainable development goal-related investments to achieve the targets by 2030. This represents to 4-5% of the region’s GDP.

Developing economies can mobilize resources through green and social bond issuances by both the public and private sectors, she said. — B.M.Laforga

Duterte orders gov’t agencies to identify savings

May 13, 2021 | 12:31 am

Duterte-PCOO — PRESIDENTIAL PHOTO/ JOEY DALUMPINES

PRESIDENT Rodrigo R. Duterte has directed all agencies under the Executive department to identify savings from their 2020 budgets.

In Administrative Order No. 41, the President ordered agencies to identify portions or balances of their released appropriations under the 2020 General Appropriations Act “that may be declared as savings.”

The Department of Budget and Management (DBM) shall receive the reports of agencies on their compliance with the order within 15 days. The DBM shall then recommend to the President the amount that can be declared as savings, budget items that need to be augmented, and excess funds that can be used to provide cash aid for low-income families.

“The impact of the COVID-19 (coronavirus disease 2019) pandemic and the increasing cases of COVID-19 infection call for intensified government-wide response and recovery measures, including various forms of socioeconomic relief and assistance to those affected by the imposition of stricter levels of community quarantine,” Mr. Duterte said.

Savings are defined as portions or balances of any released appropriations that have not been obligated “as a result of the completion, discontinuance, or abandonment of a program, activity, or project.”

Savings also include funds that have not been obligated “as a result of the implementation of measures resulting in improved systems and efficiencies, enabling the agency to meet and deliver its goals at a lesser cost.”

To recall, the validity of the 2020 national budget was extended until Dec. 31, 2021 under Republic Act. No. 11520.

Lawmakers have proposed additional assistance programs for vulnerable sectors, but has received a lukewarm response from the Palace.

At least three committees at the House of Representatives have approved the proposed Bayanihan to Arise as One Act or Bayanihan III, which sets aside about P405.6 billion to assist various sectors affected by the pandemic.

Marikina Representative Stella Luz A. Quimbo, one of the bill’s proponents, said the measure could be funded by savings from the 2020 and 2021 national budgets as well as the excess capital and more dividends from government-owned and -controlled corporations. She also urged the government to implement austerity measures in order to afford the stimulus measure.

Presidential Spokesperson Herminio “Harry” L. Roque, Jr. had said the government needs to allow previous economic packages to run their course first before entertaining the possibility of a multibillion stimulus package. — Kyle Aristophere T. Atienza

Jollibee swings to profitability, moves to cut debt

May 13, 2021 | 12:08 am

JOLLIBEE Foods Corp. (JFC) generated P153 million in net attributable income despite lower sales in the first quarter, it said on Wednesday, as it bounced back from the P1.68-billion loss recorded in the same period last year.

The fast-food giant recorded a 12% revenue fall to P34.68 billion from P39.43 billion. It finished the quarter with an operating income of P1.49 billion, a reversal of last year’s P1.17-billion loss.

“Our profit and cash flows recovered strongly versus a year ago reflecting the successful execution of our business transformation program,” Jollibee Chief Executive Officer Ernesto Tanmantiong said in a statement on Wednesday.

The company launched a business transformation program in May last year to rationalize the company’s operations, which resulted in the permanent closure of 486 nonprofitable stores worldwide and four commissaries in the Philippines on top of other cost-saving initiatives.

Jollibee also said it implemented selling price adjustments in the fourth quarter last year and in the first quarter this year to offset the impact of higher inflation.

System-wide sales for the quarter went down by 13.4% to P47.78 billion from P55.15 million year on year.

“While we still face significant challenges in the Philippines due to continued restrictions related to the pandemic, our Philippine business provided the most profit contribution among all our regions in the world,” Mr. Tanmantiong said.

The company’s international business accounted for 41.1% of the first-quarter’s global system-wide sales for the quarter, while sales at home contributed 58.9%.

However, sales from the Philippines declined by 21.3%, while sales from the company’s international business improved by 1.3%.

“In the month of March 2021, our sales in China, North America (Philippine brands), EMEAA (Europe, Middle East and Asia) and SuperFoods mainly in Vietnam were already equal to or slightly higher than those in March 2019,” Mr. Tanmantiong added.

Global same-store sales in the January-to-March period decreased by 14.7%, with same-store sales at home declining by 26.1% as businesses abroad improved by 7.5%.

“Lower sales per store in the Philippines were caused by continued high level of restrictions to control the coronavirus [disease 2019] (COVID-19) pandemic particularly in Metro Manila and nearby provinces,” Jollibee said.

The company permanently closed 76 stores during the January-to-March period: 18 stores were shuttered in the Philippines and 58 abroad.

Despite this, it launched 19 new stores in the Philippines in the first quarter. It also added 12 new stores in China, eight in North America, and one in the EMEAA region.

In a separate statement, Jollibee said it is planning to issue preferred shares and is eyeing to buy back up to $250 million of its US-dollar perpetual bonds via a cash tender offer within this year.

The issuance of the peso preferred shares is still subject to the approval of the company’s shareholders and the approval of the Securities and Exchange Commission.

“JFC’s objective in this plan is to restructure its financial obligations in order to strengthen its balance sheet, spread the maturity of its financial obligations and reduce its foreign exchange risks,” the company said.

“This is also part of its action steps to reduce its debt and financing cost as its businesses in different parts of the world recover from the severe impact of the pandemic,” it added.

Jollibee said it will apply for the shelf registration of up to P20 billion cumulative, non-voting, non-participating perpetual preferred shares this year.

It will be sourced from a reclassification of existing authorized and unissued common shares. The company said this will not adjust the total number of its authorized shares in its equity and neither will it affect its current cash dividend policy and implementation.

The first issuance will consist of eight million preferred shares to be issued this year worth P8 billion, with an oversubscription option of four million preferred shares worth P4 billion.

It said the initial tranche will be issued in up to two subseries “and may have [stepped] up dividend rates if they are not redeemed within three years or five years.”

Aside from buying back some of its US-dollar perpetual bonds, the company said it is also eyeing to reduce other financial obligations through bank loans this year.

On Wednesday, Jollibee shares at the local bourse shaved off 2.63% or P4.60 to close at P170.40 each. — Keren Concepcion G. Valmonte

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