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Tough Gauff downs ninth seed Konta in Paris

PARIS — American teenager Coco Gauff made an impressive return to the Grand Slam stage when she brushed aside last year’s semi-finalist Johanna Konta 6-3 6-3 in her main draw debut at the French Open to advance into the second round on Sunday.

Less than a month after a first-round exit at the US Open, Gauff was all business on a floodlit Court Suzanne Lenglen in front of a dozen spectators in chilly Parisian weather.

The 16-year-old, the youngest player in the main draw whose best result at a Grand Slam was reaching the fourth round at the Australian Open earlier this year, will next face Italian qualifier Martina Trevisan.

Gauff admitted she was nervous before entering the court, but a little chat with her father helped settle the jitters.

“Honestly, my dad told me something in the warmup,” she said. “His goal was to become an NBA player, and he didn’t make it. He told me, you’re living your dream, not everybody gets to do that, just have fun on the court.”

“That really changed my perspective. I was really nervous going into the match. That just calmed me down. I realized it’s just a tennis match. I’m doing some things that people wish they could do. Just go out there and enjoy it.”

Gauff got off to a flying start, breezing through the opening set before dropping serve early in the second, allowing British ninth seed Konta to move 2-0 up.

But the American broke straight back, and again in a nine-minute fifth game to move 3-2 up, following up on serve to lead 4-2.

She served for the match at 5-2 but Konta broke back for 5-3, only for the Briton to collapse in the following game, bowing out on the second match point when she netted a routine shot. — Reuters

There’s less than 1% chance of catching COVID-19 flying, says airline exec

Chief executive officers and executives from every major American airline spoke this week at the Skift Global Forum, a virtual conference focused on the travel industry and—this year—its stunted rebound from the coronavirus disease 2019 (COVID-19) pandemic.

With only days remaining before the Oct. 1 deadline to extend Washington’s payroll support program, which has granted the sector $25 billion in bailouts since March, the tone was generally more urgent than optimistic.

“I’ve been through 9/11, through the financial crisis, through restructuring, through our merger with US Airways and the Max grounding,” said Maya Leibman, executive vice president and chief information officer of American Airlines, “and I can say with certainty that this one takes the cake, in terms of crises.”

United Air Holdings CEO Scott Kirby warned that furloughs stemming from the expiration of payroll support could result in lapsed licenses for pilots and other certification-reliant staff, hampering the ability to “go from 50 to 100 overnight” when the lights turn back on. He added that 100,000 jobs were currently at risk and said things aren’t likely to improve significantly “until there’s a widespread vaccine.”

Ed Bastian, the CEO of Delta Air Lines, made long-term predictions: A considerable portion of business travel will be lost forever—but so will change fees.

Still, JetBlue Airways sees light at the end of the tunnel and says it may not require a vaccine or even extensive testing schemes. According to company President Joanna Geraghty, research by Harvard’s T.H. Chan School of Public Health could do a great deal for consumer confidence. The institution, she said, has found that the combined benefits of indoor mask wearing and HEPA air filtration systems yield a “less than 1% risk of transmitting COVID in an aircraft.”

The Harvard study, sponsored by the aviation industry, appears to be ongoing; the CDC, meanwhile, released preliminary data this week showing that 11,000 people in the U.S. have been potentially exposed to the virus on flights.

Convincing travelers that it’s safe to fly could be a five-year battle, says the International Air Transport Association. However long it takes, one thing is clear: Aviation has the potential to return in better shape than before. Here’s how these carriers plan to do it, as summarized from their four panels.

Delta’s Bastian said that with 50% of domestic flights operational and running at around 30% of normal domestic passenger volume, the airline is seeing record-high customer service satisfaction scores. Before the pandemic, the average Net Promoter Score (NPS) for airlines was 44, on a scale of -100 to 100, measuring customer satisfaction via willingness to recommend a company’s product or services. In August, Delta’s score was 75, which Bastian credits to the airline’s commitment to mask compliance, electrostatic fogging, and blocking middle seats.

“All those steps are making a big difference in consumer confidence,” said Bastian. “Honestly, if you had asked me what the odds of Delta ever hitting a 75 in NPS, I’d say that’d be hard to imagine.”

The feedback indicates that some pandemic-borne policies may be worth holding on to. Nixed change fees may be a permanent change, along with the new antimicrobial TSA bins Delta airline introduced in five hubs earlier this month. “We’re trying to take what we can learn from this to make sure [that the positive feedback] continues on in the future,” Bastian said.

JetBlue’s Geraghty, meanwhile, suggested pivoting away from “perception based” policies such as blocking the middle seat—which the airline has promised to do on every flight through Oct. 15. She called instead for an awareness campaign, driven by Harvard’s research, that would establish flying to be as safe as a trip to the grocery store.

United’s Kirby agreed: “The facts are stunning how safe an airplane is.” But he doesn’t see a demand rebounding until a vaccine is widely adopted, unless airlines can “get past the bureaucratic finish line” when it comes to testing.

“We’re close to establishing a travel corridor between New York and London,” said the United CEO. “If we can do that in one place and inspire confidence, we can open up other parts of the world.”

Kirby said United is burning through $25 million a day—“better than most our competitors”—while operating in “an apocalyptic environment.” He’s making up some deficit by growing the cargo flying business and shifting routes away from popular business hubs to domestic leisure destinations that have good connectivity, such as Denver, all while fading the airline’s maligned $200 change fees.

“Right now, we’re flying about 45% of our schedule—we’re a smaller airline—and this is probably the size we’ll be for the next 15 months,” he explained. The benefit to consumers, if not to United’s bottom line, is that for as long as passenger loads remain low, so will airfares. (In July, the airline brought back beverage and snack service to all its cabins, though such premium perks as Saks Fifth Avenue bedding in business are still off the table.)

JetBlue is also focusing on affordability and convenience. “The benefit of being a smaller airline is being very nimble, adding and taking down route coverage as demand fluctuates,” said Geraghty, who has been overseeing an expansion into Newark Liberty International Airport that includes Mint premium service to the West Coast. “We’re doing what JetBlue does best: increasing service at fares customers can afford,” she said.

American Airlines, meanwhile, is compensating for reduced cabin staff and meal service by doubling down on technology. New features for the airline include touchless kiosks that use QR codes to bring check-in to an “applet” on your phone, the ability to print bag tags by scanning your mobile boarding pass, and adopting facial recognition technology to sidestep the need for some forms of ID verification.

Less glitzy but maybe even more useful, said Liebman: a mobile wallet feature that enables easy cancellations, voucher redemptions, and refund processing.

“The focus on clean, safe, touchless experiences will only continue to grow, post-pandemic,” she explained.

Each of the four executives voiced full-throated support for the idea that sustainability and social justice will define business far longer than the pandemic, and outlined commitments that may surprise the average flier—particularly at a time when cash is not exactly flowing.

All of JetBlue’s domestic aircraft were carbon neutral as of August, said Geraghty, who said the move is a first step. “Sustainable fuels have a ways to go. Air traffic control reform. Efficient air space. They’re all ways to improve the aviation industry’s footprint.”

While the company is proud that 55% of its crew represent diverse backgrounds, Geraghty expressed a desire to see more inclusive recruitment at the company’s top ranks, as well as within the company’s network of suppliers, airport restaurants, and other terminal-based businesses.

“As we rebuild our companies from the pandemic, we have to make sure we take everyone forward with us,” said Delta’s Bastian, who said 40% of his 75,000 employees are people of color, with 30% of them in positions of leadership. “Governments have a hard time with a lot of this, but businesses have an opportunity to pull people together,” he added.

Of the four airlines, Delta is ranked among the top 10% of companies in its size for diversity by Comparably, a workplace transparency tool, while American Airlines ranks in the top 50%. United ranks in the bottom 35%, JetBlue in the bottom 10%.

American’s Leibman talked up its “hackathons,” which seek to identify and employ talent from historically black colleges and universities, along with efforts to get young females interested in STEM education to create pipelines of diversity from early on.

Kirby similarly praised United’s Aviate program, which trains pilots from under-represented backgrounds, and he decried carbon offsets as a viable solution. “We were pitched one where they took your money, burned down a rainforest, and replaced it with palm oil plantations,” said Kirby. He also pointed at air traffic reform—which would create more direct and efficient routes—as a critical avenue of exploration.

“We are part of a global society, whether we like it or not,” he said, “and we have to solve global problems—not just one a time.” — Bloomberg

BTS members bank $55 million and ‘Hitman’ is now billionaire

After blowing up the charts with “Dynamite,” the first English song from South Korean boy band BTS, Big Hit Entertainment Co. is having another moment.

This time, it’s with an initial public offering that is giving the company a market value of about $4 billion. The country’s largest listing in years took just hours for underwriters to find buyers for the available stock and priced on Monday at the top end of a marketed range. That’s even after COVID-19 forced BTS to cancel its world tour, and despite the risk that some of its stars may have to do military service.

“It seems reasonable to go for the higher price as the prospect for next year’s results seems positive,” said Sung Jun-won, an analyst at Shinhan Investment Corp. “Album sales have gone up in the absence of concerts, and BTS is at the center of the ongoing popularity.”

The offering is making Big Hit founder Bang Si-hyuk worth $1.4 billion, according to the Bloomberg Billionaires Index. The seven band members, all in their 20’s, are also getting about $8 million stakes after Mr. Bang gave each of them 68,385 shares in August.

Mr. Bang, 48, owns 43% of the Seoul-based music agency, while gaming company Netmarble Corp. holds 25% after investing $172 million two years ago. Netmarble’s founder, Bang Jun-hyuk, a relative of Big Hit’s Bang, is already one of South Korea’s richest people.

Big Hit declined to comment.

Mr. Bang, also known as “Hitman,” founded Big Hit in 2005 after a successful career as a music producer at JYP Entertainment Corp. Initially, the business was so quiet that artists stopped by the office just to play tennis matches on the company’s Nintendo Wii, Bang said in a 2017 Bloomberg interview. After almost going bankrupt, Big Hit’s first breakthrough came in 2009, when its 8Eight’s “Without a Heart” became a local hit.

BTS officially debuted in 2013 with its single album “2 Cool 4 Skool” and gained global attention when it grabbed the Top Social Artist award at the 2017 Billboard Music Awards. “Dynamite” became the No. 1 song on the Billboard Hot 100 chart when it debuted in August and was the first Asian act to top the U.S. ranking since Kyu Sakamoto’s “Sukiyaki” in 1963. The band’s rise is often attributed to an effective use of social media and legions of fans obsessively devoted to the band, known collectively as the Army. BTS generated more than 97% of Big Hit’s sales last year and almost 88% in the first half of 2020, the IPO filing showed.

“I get questions about how BTS has become so successful, and I’m curious too,” Mr. Bang said in a local TV show in 2018. “I didn’t imagine a future like now when I first planned BTS. The goal then wasn’t to make them as top artists.”

The coronavirus pandemic has dealt a blow to the broader music industry, with live concerts and performances canceled or postponed due to social-distancing restrictions put in place to prevent the virus from spreading.

But BTS churned out chart-topping songs and performances on shows such as the MTV Video Music Awards. The band managed to raise tens of millions of dollars by hosting a live streaming concert that drew 756,000 viewers around the globe to its own fan communication platform. Big Hit also set up content-based business models, with the group featuring in a Netmarble game and Samsung Electronics Co. releasing a BTS edition for its Galaxy S20 smartphone series.

Big Hit’s revenue slid just 8% in the six months through June to 294 billion won ($251 million), with concerts accounting for less than 1% of sales, compared with a third last year, according to the IPO filing.

The pandemic remains a concern, though. A worsening or prolonging of the health crisis could be negative for the company’s business plans or earnings, Big Hit warned in its prospectus.

The agency’s heavy reliance on BTS could also become a drawback, especially as its members still have to serve mandatory conscription to the country’s military — all South Korean male citizens between 18 and 28 have to for about two years. BTS’s oldest member, Jin, may be able to postpone his national service until the end of 2021, and a proposed bill this month could pave the way for pop artists to delay it until they’re 30.

For now, Big Hit is seeking to expand its portfolio by striking deals with other agencies and developing new talent. It acquired K-pop group management company Pledis Entertainment earlier this year and aims to launch a new group through a joint venture with CJ ENM Co. A new girl band will debut next year, the agency said.

“When the virus started, it was thought to be a crisis because they had to cancel almost everything that was scheduled. But it’s no longer considered as a crisis,” Shinhan’s Sung said. “Big Hit has showed that it can still make profits through online concerts and album sales without physical tours and concerts.” — Bloomberg

[B-SIDE Podcast] The Seven Commandments for public transport

Former Health Secretary Manuel M. Dayrit explains to BusinessWorld reporter Vann M. Villegas how the Department of Transportation (DOTr) came up with the Seven Commandments for public transportation and how these health measures are supposed to work together to make up for reducing the one-meter-apart rule. 

DOTr suspended reduced physical distancing after President Rodrigo R. Duterte, on September 19, decided to stick to conventional wisdom, which says that people need to keep a distance of at least one meter from each other to limit the potential spread of coronavirus.

The Seven Commandments are:

  • Wear a proper face mask
  • Wear a face shield
  • No talking, no eating
  • Adequate ventilation
  • Frequent and proper disinfection
  • No symptomatic passengers
  • Observe physical distancing

Recorded remotely on September 18. Produced by Nina M. DiazPaolo L. Lopez, and Sam L. Marcelo.

BDO Foundation reaffirms commitment to rebuild lives

FILIPINOS are battle-tested for any type of crisis and the fight against COVID-19 is no different. Even if this unprecedented pandemic is still far from over sans the availability of a vaccine, hopes are still high with the presence of means to survive the fight.

A few months since the global pandemic reached the country, BDO Foundation has already launched a number of initiatives to help various sectors get back on their feet. 

Giving its full support

BDO Foundation launched the Peso-for-Peso Donation Drive, a fundraising activity that ran from May until July 16, 2020. Proceeds were used to provide test kits and supplies to COVID-19 testing centers in underserved communities nationwide.

Under the drive, minimum donations of P500 and maximum donations of up to P1 million per donor were matched peso for peso by BDO Foundation. Donations from BDO and non-BDO customers, as well as BDO employees, poured in via the Bank’s

e-banking channels—BDO Online and Mobile Banking, as well as through BDO Credit Card, ATMs, and branches.

Mario Deriquito, president of BDO Foundation, said the initiative forms part of the Foundation’s advocacy to rebuild lives and provide support to hospitals, especially rural health units all over the Philippines.

Part of the money raised from the drive funded the donation of close to 10,000 PCR test kits for use of 10 hospitals across the country. These recipient-hospitals agreed to use the test kits for frontliners and people who cannot afford the high costs of testing.

The Peso-for-Peso Drive also funded the donation of food packs to 8,000 underprivileged families in Bacoor, Cavite; Santa Rosa, Laguna; San Jose del Monte, Bulacan; and Caloocan City.

On top of these efforts, BDO Foundation also supported the Philippine government’s RapidPass and ReliefAgad programs, highlighting the importance of collaboration between the private sector and the national government.

The Bank, through the Foundation, donated 300 smartphones with prepaid loads and 550 powerbanks to the Department of Science and Technology in support of the RapidPass System. RapidPass used QR codes, which facilitated the quick passage of the vehicles of over 500,000 authorized frontliners. The smartphones donated by the Foundation served as QR scanners at 180 checkpoints, where there were special lanes for frontliners.

Additionally, BDO Foundation also provided support to facilitate one-time passwords to users of ReliefAgad, a web application that allowed those entitled to a cash aid to register online and to receive their financial assistance safely and swiftly through electronic payment systems or directly from banks.

Response through partnership

Isolate, test, and trace comprise the backbone of an effective COVID-19 response, according to the World Health Organization. Many countries who have successfully contained the spread of the virus implemented such protocol. Now, the Philippines is no longer too far behind with the pilot implementation of Project ARK’s pooled RT-PCR testing in two key cities in the country, namely, Makati and Cebu.

Pooled testing combines swab samples from individuals and examines them together using a single reverse transcription polymerase chain reaction (RT-PCR) test kit. Pools of five, 10 or 20 persons are tested depending on the prevalence of COVID-19 in an area. Considered a game changer in the fight to contain the coronavirus, the method is seen to boost testing capacity, expedite tests and significantly reduce the cost of RT-PCR kits. Based on extensive research conducted by the Philippine Society of Pathologists, pooled testing is very effective.

BDO Foundation is funding the pilot implementation, covering the costs of automated extractor machines for each city, training of health workers on proper swabbing, PCR test kits, and other peripherals.

Apart from Go Negosyo, who spearheads Project ARK, BDO Foundation is in collaboration with the local governments of Makati and Cebu, the Philippine Children’s Medical Center, who will be its partner-testing center for the pilot implementation in Makati, and the University of Cebu Medical Center and Vicente Sotto Memorial Medical Center for the pilot implementation in Cebu.

Pilot implementation of RT-PCR pooled testing in Makati covered 6,000 individuals, mostly market vendors and public utility drivers. In Cebu, pilot implementation will cover 4,000 individuals, also market vendors and public utility drivers.

A worthy cause

BDO Unibank president and CEO Nestor V. Tan, who also sits as trustee of BDO Foundation, said the support for the pooled testing project comes with the belief that it will address the key areas of cost, accessibility, and timeliness. The implementation of the project is seen to not only benefit Cebu and Makati but will hopefully impact the whole country as well.

“We always believed that the fight against COVID is not the public sector’s alone or the private sector’s. It is a joint initiative by all of us working on the same direction. We are a big supporter of Go Negosyo’s Project ARK because clearly it is not about the trade-off between life and livelihood but it’s trying to address both because one cannot exist without the other,” he said.

Analysts’ expectations on policy rates (Oct. 1)

THE Bangko Sentral ng Pilipinas (BSP) is widely expected to leave benchmark interest rates untouched on Thursday, as it reserves its measures in case economic recovery lags, analysts said. Read the full story.

Analysts’ expectations on policy rates (Oct. 1)

BSP to hold rates at record low — poll

By Luz Wendy T. Noble, Reporter

THE Bangko Sentral ng Pilipinas (BSP) is widely expected to leave benchmark interest rates untouched on Thursday, as it reserves its measures in case economic recovery lags, analysts said.

In a BusinessWorld poll held last week, 14 of 15 analysts said they expect the Monetary Board (MB) to keep interest rates steady at its fifth policy-setting review on Oct. 1.

“I suspect that ‘enough liquidity’ would be the flavor of the discussion in this October’s MB meeting. The demand side has been obviously still lagging and the supply side is clearly very well supported,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

Analysts’ expectations on policy rates (Oct. 1)

Security Bank Corp. Chief Economist Robert Dan J. Roces said the Monetary Board will likely consider the third-quarter gross domestic product (GDP) report before making any policy adjustments.

After a record 16.5% contraction in the second quarter, the government expects third-quarter GDP to be slightly better. It is projecting a 4.5% to 6.6% drop in the economy this year.

The third-quarter GDP report will come out on Nov. 10.

“The interest pause is also to preserve monetary policy space in case the baseline expectations of shallowing recession in (second half) 2020 and rebound in 2021 fail to materialize,” Maybank Investment Bank Chief Economist Suhaimi Bin Ilias said.

BSP Governor Benjamin E. Diokno has said the central bank’s policy moves already infused some P1.4 trillion in liquidity, equivalent to 7.3% of the country’s GDP.

Despite this, bank lending has been tepid. In July, outstanding loans by big banks rose by 6.7%, easing for the fourth consecutive month and slower than the 9.6% expansion in June.

This further suggests that a rate cut is unlikely on Thursday, with the BSP likely to use other tools to provide much needed support during this crisis, said ANZ Research economist Kanika Bhatnagar.

“The insufficient transmission of cuts in the policy rate through the lending is a larger concern for now,” Ms. Bhatnagar said.

“We expect the central bank to provide support in other ways such as facilitating government borrowings and implement a loan moratorium to ease the debt servicing burden of borrowers,” she added.

Under Republic Act No. 11494, or the Bayanihan to Recover as One Act (Bayanihan II), banks and other covered institutions must implement a one-time, 60-day moratorium on all loan payments.

The law also allowed the BSP to directly lend up to 30% or about P850 billion of its average revenue to the National Government, higher than the 20% (or about P540 billion) of its average revenue allowed under the New Central Bank Act.

The BSP bought P300 billion in government securities with zero interest from the Bureau of the Treasury (BTr) under a repurchase agreement back in March.

“We think BSP will focus more on debt monetization for now after the cap for lending to the government was raised,” Mitsubishi UFJ Group Global Research analyst Sophia Ng said.

She also said the BSP is likely to leave the reserve requirement ratio for banks unchanged, with the next easing likely to come by the first quarter of next year.

At its Aug. 20 policy meeting, the MB kept rates on hold following 175 basis points (bps) of reduction earlier this year that brought down the overnight reverse repurchase, lending, and deposit facilities to record lows of 2.25%, 2.75% and 1.75% respectively.

Meanwhile, the reserve requirement for big banks has been cut by 200 bps to 12% while reserve requirements for thrift and rural lenders were slashed by 100 bps to 3% and 2%, respectively. The Monetary Board is allowed to bring down the rate by up to 400 bps this year.

Mr. Diokno earlier said the current policy stance may be kept for the next few quarters. He said the BSP still has bullets when needed and is committed to a “long-term low inflation regime” and will continue to do what they have done “for maybe another two years.”

Headline inflation in August stood at 2.4%, bringing the eight-month average to 2.5%. This is well within the 2-4% target set by the BSP but higher than the key interest rate of 2.25%.

Alex Holmes, an economist from Capital Economics, expects another easing this Thursday.

“We have penciled in a 25-bp cut, given the weakness of the recovery. As it stands we have one further rate cut penciled in after next Thursday, which would take the policy rate to 1.75%,” he said.

After Oct. 1, the Monetary Board has two more meetings this year — on Nov. 19 and Dec. 17.

Proposed listing rules may need more investor safeguards

The Philippine Stock Exchange, Inc. has proposed amendments to the listing rules on its main board and small, medium and emerging board. — COURTESY OF PHILIPPINE STOCK EXCHANGE, INC.

By Denise A. Valdez, Senior Reporter

STOCK BROKERS welcomed the efforts of the Philippine Stock Exchange, Inc. (PSE) to ease listing rules to allow more companies to raise capital through the bourse, but warned of potential risks from relaxing some safeguards.

The bourse operator has proposed amendments to the listing rules on the PSE main board and small, medium and emerging (SME) board.

For listing on the main board, the PSE is proposing to remove the P500-million minimum market capitalization requirement, and to focus on a three-year cumulative net income instead of EBITDA (earnings before interest, taxes, depreciation and amortization). It also suggested that companies have a cumulative net income of P75 million in the past three years, a net income of P50 million in the past year before listing, as well as a minimum total stockholders’ equity of P500 million.

For listing on the SME board, the PSE is seeking to remove the requirement for a positive EBITDA in at least two of the past three years before listing. It will only keep requiring a three-year cumulative EBITDA of at least P15 million, and proposed as an alternative — to look at a company’s three-year cumulative operating revenue that should hit P150 million and grow at least 20% in the past two years.

The PSE is also proposing to remove the P100-million minimum authorized capital stock requirement and replace it with a P25-million paid-up capital to list on the SME board.

These measures are intended to increase the listings on the local bourse to become at par with its regional peers, the PSE said. It wants to encourage small and medium-sized enterprises to raise capital through the stock market.

AAA Southeast Equities, Inc. Research Head Christopher John Mangun said the rules would benefit small businesses and some startups.

“The previous listing requirements have always favored big companies. The new rules will allow smaller companies by capitalization that have attained profitability to list on the main board,” he said in an e-mail.

“The new changes will not only encourage more companies to go public but will also open different industry sectors to investors that have not been available before,” he added.

However, some flagged possible risks from the relaxed listing rules.

Jervin S. de Celis, a trader at Timson Securities, Inc. said that by making it easier for small businesses to list, there may be a higher risk that they would delist when challenged, putting investors on the line.

“While the lenient listing rule… will give investors more options where to place their money, I think imposing stricter rules to protect the investing public in this lenient listing requirements should also be discussed,” Mr. De Celis said in a message.

“As we all know, some companies struggle to earn…. When the tides change and some companies delist or are suspended and delisted by the PSE during rare instances, how are investors going to be protected?” he added.

Japhet Louis O. Tantiangco, a senior research analyst at Philstocks Financial, Inc., said it’s important to measure a company’s EBITDA, apart from only looking at net income and cumulative operating revenues.

“We believe that the EBITDA should still be highly considered since it is a metric that helps us see the profitability of the company based on its core operations,” Mr. Tantiangco said in a message.

“There’s the possibility that a company has posted strong EBITDA in the first of the three years but posted losses in the succeeding two. If the cumulative (EBITDA) of the three years still meets P15 million, it would still pass the requirement despite the poor trend,” he added.

Aside from the relaxed requirements, the PSE is pushing a “big brother” program under the new rules. Through this program, companies that do not meet the listing requirements but have a “significant growth potential” may list on the SME board through a sponsor, such as investment houses that will guide them in their public offering phase until three years after listing.

“This big brother model is adopted by various bourses in the region and we think that this will also work in our market…. With the sponsor model, we hope to help and support more SMEs grow their businesses,” PSE President and CEO Ramon S. Monzon said in a statement on Thursday.

It is also offering relief for listings to be filed in 2021 and 2022 by checking only the profitability of a company during any two fiscal years in its three most recent fiscal years, and exclude the year when it felt the coronavirus impact.

“By easing certain requirements, we hope to make a significant contribution to the country’s economic recovery process,” Mr. Monzon said.

New tax measures before 2022 elections unlikely

The passage of new tax measures ahead of the national elections is unlikely, lawmakers said. — PHILIPPINES STAR/MICHAEL VARCAS

By Charmaine A. Tadalan, Reporter

THE passage of any new tax measures in the Duterte administration’s last year in office is unlikely, according to key lawmakers, even as the Finance chief said new sources of revenues are needed to pay off the debt incurred during the pandemic.

Finance Secretary Carlos G. Dominguez III told a Senate committee hearing last week the government would start looking into new revenue-generating measures in late 2021 or early 2022 “to pay for the heavy indebtedness that we are incurring this year” due to the pandemic.

As of Sept. 15, the government had obtained $9.9 billion worth of loans and grants from external sources to fund its coronavirus disease 2019 (COVID-19) containment effort and to support recovery measures.

“I think Secretary Dominguez’s timeline is a bit on the late side, although the Department of Finance (DoF) has been working with the Committee on Ways and Means to find revenue sources that do not erode economic growth,” Albay Rep. Jose Ma. Clemente S. Salceda, who heads the committee, told BusinessWorld in a phone message last week.

The DoF’s timeline is also close to the 2022 national elections, which would make it difficult for lawmakers, especially those seeking reelection, to support any measure raising taxes.

But Mr. Salceda said the tax bills may stand a chance even in an election year.

“You will remember that I championed tobacco tax reform at the height of the campaign for the 2019 elections. Elections make tax laws more difficult, but not impossible, to pass,” he said.

The coronavirus pandemic and the economic slowdown has also affected government revenues.

“The DoF, not just this one, but past DoFs in the last decade or so have managed to lower costs of our borrowings. COVID-19 changed that somewhat with lowered demand and production hence lower revenues also,” Senator Juan Edgardo M. Angara, who is vice chairman of the Ways and Means panel, told BusinessWorld in a phone message.

He said he would back revenue measures on a “case-to-case” basis, citing his support for the revenue-negative Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).

Meanwhile, Mr. Salceda said bills increasing the government’s revenue share from the digital economy and mining industry as well as reforming tax administration would be enough to increase collection.

The digital economy tax bill, which targets large corporations, is expected to be approved at the House of Representatives this week. This is on top of bills that raise corporate income tax and streamline incentives, and update the road users’ tax, which have been sent to the Senate.

“We don’t lack measures to raise revenues,” Mr. Salceda said.

He said he would file a proposed Tax Administration Reform Act and look into overhauling the registration and tax compliance system to reduce the cost of paying taxes.

He also pushed the passage of the CREATE bill that will immediately lower company taxes to 25% from 30%. It is expected to result in P40 billion foregone revenues in 2020 and P650 billion in the next five years.

This forms part of the government’s economic stimulus package, along with Republic Act No. 11494, or the Bayanihan to Recover as One Act (Bayanihan II) that allocates up to P165 billion in aid.

“We need to achieve a quick and lasting economic recovery. There is nothing much to tax when the economy is still struggling…. It’s critical that we complete our economic recovery program,” Mr. Salceda said.

He argued it is unlikely that the Philippines will strongly recover without CREATE, which is aimed at capturing investments from companies relocating out of China. The bill is under plenary deliberation at the Senate.

CREATE is among the priority measures President Rodrigo R. Duterte mentioned in his fifth State of the Nation Address. It is also among the bills listed down by 14 business groups as priorities.

NG borrowings hit P2.5 trillion in 8 months

STATE BORROWINGS ballooned to nearly P2.5 trillion in the first eight months of the year, following the National Government’s (NG) jumbo retail Treasury bond (RTB) sale in August.

Data from the Bureau of the Treasury (BTr) showed the government’s gross borrowings stood at P2.47 trillion as of end-August, more than double the P916.271 billion borrowed in the same period last year.

Since May, the government’s borrowings have exceeded the P1.02 trillion it raised for the entire 2019, as it sought to beef up funds for its pandemic response.

In August alone, gross borrowings surged more than eight times to P612.913 billion from P76.524 billion a year ago due to the RTB sale.

Gross domestic borrowings, which accounted for 95% of the total, reached P584.374 billion last month, climbing 19 times from P29.67 billion in August 2019 and up almost nine times from P66.837 billion in July.

The bulk came from the five-year RTB sale that raised an all-time high of P516.34 billion.

The Treasury issued P38 billion in Treasury bills (T-bills) and P30 billion in Treasury bonds (T-bonds), down by 50% month on month.

Excluding the P28.14 billion of repayments made, the government’s net domestic borrowings hit P556.235 billion. Some P100 billion was paid via the redemptions made from the bond sinking fund.

Meanwhile, overall foreign borrowings reached P28.539 billion, down by 39% year on year and 58% smaller than P67.7 billion in July.

This consisted of P26.501 billion in program loans and P2.038 billion in project loans.

The BTr made P2.057 billion in repayments in August, taking the net external borrowings lower to P26.482 billion.

Year to date, gross borrowings accounted for 58% of the government’s P3-trillion borrowing program for the entire 2020, with 65% obtained locally and the rest offshore.

Domestic borrowings reached P1.96 trillion in the January to August, up three times more year on year.

Funds raised through RTBs hit P827.12 billion after the BTr offered it twice this year. In February, the BTr raised P311 billion from the issuance of three-year RTBs.

About P447.86 billion was raised through T-bonds offered regularly and P385.3 billion via the weekly auctions of T-bills.

The BTr also has an outstanding P300 billion worth of securities availed of by the central bank in April under a repurchase agreement.

It paid P89.166 billion in amortization, bringing the net domestic borrowings to P1.871 trillion. It also made P284.84 billion worth of redemptions from the bond sinking fund.

Meanwhile, foreign borrowings reached P509.69 billion, up 85% from the same eight-month period last year.

Program loans worth P306.536 billion made up the bulk, while project loans amounted to P17.1 billion.

The Treasury went to the international debt market twice this year, raising P118.74 billion through dollar-denominated notes in May, and P67.329 billion in its eurobond sale in February.

Excluding the P117.044 billion of repayments made, net external borrowings amounted to P392.647 billion, more than twice year on year.

The total net borrowings hit P2.263 trillion year to date, up almost three times from P802.504 billion a year earlier.

The government borrows from local and foreign lenders to plug its budget deficit that is seen to swell to 9.6% of gross domestic product this year. — Beatrice M. Laforga

SEC to rate entities on risks vs laundering, terror finance

By Denise A. Valdez, Senior Reporter

THE Securities and Exchange Commission (SEC) wants to be more proactive in tracking money laundering and terrorist financing by rating the effectiveness of firms in preventing such activities.

On Sept. 24, the regulator issued Memorandum Circular No. 26, which calls for the implementation of an anti-money laundering risk rating system.

The SEC will be rating persons and firms using four tiers (weak, needs improvement, satisfactory and strong) to gauge their risk management system in combating money laundering.

It will be based on the efficient oversight of a firm’s board of directors and senior management, its anti-money laundering policies and internal control and audit, and the effective implementation of these policies.

The SEC is also looking at the risk profiles of firms to find any residual risks. The profile is based on the size of a firm’s assets or transactions, the complexity and diversity of its products, the profile of its customers, how often it engages in international transactions, its distribution channels, and its compliance record with relevant rules by the SEC.

“[T]o be able to focus supervisory resources where the risks are higher, there is a need to identify, assess, and understand the money laundering/terrorist financing risks to which the sectors of covered persons supervised by the commission are exposed,” the SEC said.

The covered persons are banks, non-banks, quasi-banks, trusts, insurance companies, securities dealers, mutual funds, foreign exchanges and similar entities.

These institutions are required to do a money laundering risk assessment by the Anti-Money Laundering Act, which was legislated in 2001 and implemented by the Anti-Money Laundering Council.

What the SEC will do is evaluate their risk management system using the four tiers, and depending on the rating, enforce actions to mitigate the risks.

A firm rated as satisfactory or strong will not need intervention. A firm rated as weak or needs improvement will be ordered to submit a written action plan to the SEC and be continuously monitored and audited.

If after the process the SEC finds that a firm has failed in its risk management, it may penalize the firm with a P5,000-P2 million fine per day of violation, a permanent cease-and-desist order, revocation of its certificate of incorporation, and/or dissolution of the corporation and forfeiture of its assets.

The memorandum circular will take effect 15 days after its publication on the SEC website and in two national newspapers.

In May, the Anti-Money Laundering Council warned that remittances may drop 2-4% if money laundering and terrorist financing controls are not strengthened in the country, as this would push international banks to be more cautious in transactions with Filipinos.

Both the Senate and the House of Representatives have measures to amend and fortify the Anti-Money Laundering Act—Senate Bill 1412 and House Bill 6174—but both remain pending on the committee level.

As catwalks move online, luxury brands try to keep a human touch

LUXURY clothing houses have long valued direct personal interaction through their boutiques and fashion shows. Perusing the sumptuous goods in a shop, with a glass of champagne in hand, promises a superior consumer experience to the mundane act of ordering online, and sitting front row at a catwalk remains a coveted status symbol.

That’s why there has been more on display than the latest looks at the September fashion weeks in London, Milan and Paris. This year, they’re a proving ground for just how successfully the industry has reinvented itself for the age of social distancing to push its message and products through digital channels.

Burberry Group Plc’s show on Sept. 17 provided a snapshot of the challenges that await. A walk-up segment featured celebrities including supermodel Bella Hadid and soul artist Erykah Badu engaged in a halting conversation on the Twitch streaming platform. The actual show — without guests — was staged in a forest as a bold blend of postcard English country life and contemporary angst. Models stalked forth among the trees, while performance artists created a brooding backdrop that left some online viewers bewildered, calling it “satanic” and “creepy” in live-stream comments. Burberry’s Spring/Summer 2021 show was to be completely remote, with no guests attending in person.

Chief Creative Director Riccardo Tisci’s attempt to take the storied British brand out of its comfort zone of trench coats and Burberry plaid highlights the extra effort needed to interact with a fan base that is following the proceedings from tiny screens at home. The luxury-goods industry has been particularly hard-hit by the coronavirus disease 2019 (COVID-19) pandemic, as high-rolling shoppers stay home, boutiques remain shuttered for months, and more consumers migrate to online boutiques that many brands long eschewed.

“These are maisons which know how to do events and beautiful shows, and all of a sudden they have to reinvent their work to create an online experience,” said Anne Michaut, a marketing professor at business school HEC Paris. Most brands “have a century or half a century of know-how for shows. Obviously we don’t have this amazing experience in digital.”

BIG CIRCUS
Fashion shows have traditionally functioned as an important branding catalyst. There’s the buildup ahead of the event, with paparazzi chasing celebrities and models across Paris or Milan from one event to the next. Who sits where in the front row is fodder for endless gossip, and the shows can be infinitely recycled afterward in fashion magazines and online.

Staging the events is a huge logistical and financial undertaking. Chanel’s shows, in particular, are the stuff of legend. The Paris-based house routinely rents out the giant glass-domed Grand Palais in the French capital, where models in years past strutted among installations including a space rocket, a supermarket or an intricate replica of a French brasserie.

Chanel will return to the same venue this year, but the company hasn’t yet revealed details of the show, due to take place on Oct. 6. Neither has crosstown rival Dior, part of the LVMH luxury emporium. The French brands are holding out any announcements as virus cases spike again in the country where haute-couture was born, potentially forcing them to switch gears and go digital at the last minute.

DIGITAL LIMITS
Others are more sanguine. Italian silk-and-leather specialist Salvatore Ferragamo SpA plans to hold a physical show “to give a sense that business is back to normal,” according to Chief Executive Officer Micaela Le Divelec Lemmi.

Companies are trying to blend physical and online offerings to reach VIPs and the fashion press. Prada SpA staged local private screenings as well as virtual viewing events of its Sept. 24 show, while Victoria Beckham in London hosted a select number of journalists and celebrities by appointments only in a two-hour time slot before releasing her collection on film the following day.

It’s not necessarily a natural transition for brands that are still building their following. Many have long placed the focus on connecting directly with their client base, emphasizing the tactile experience of high fashion, said Jillian Xin, a buying director for Labelhood’s stores in China.

“With fashion, there’s a limit to how much can be replaced digitally,” said Ms. Xin, a regular attendee of Europe’s fashion shows in the past. “It’s a little easier for brands that we’re already familiar with, but for new brands, it’s important to see the collection in person, to touch and feel the clothes and build a relationship with the designer and their team.”

It’s not just the fashion houses that have to come to terms with the new pandemic reality. The cities that host the shows will also lose out on the spending circus that accompanies the events, from the priciest hotels to the hottest dinner and cocktail venues for the after-show parties.

ADIEU PARIS
For Milan, the drop in visitors during the fashion week will have an noticeably impact on the city economy. At the mid-point of the month, hotel bookings hadn’t experienced the surge that the event generated in years past, hovering instead at an occupancy rate of about 25%, according to Maurizio Naro, the chairman of the local Federalberghi hotel owners association.

Maison Valentino, among the biggest names in Italian high-end fashion, decided to host its show in Milan this season rather than in Paris, where it had traditionally presented its spring/summer collection. The company called the decision “more ethical” because it strengthens its identity and affiliation with the local and national economy.

While the pandemic has forced fashion houses to embrace a new channel, the risk is that brand value will suffer the longer they float in the fleeting digital universe.

And just like spectator-less soccer matches are a joyless affair, the absence of an audience at the shows stands to diminish the events’ impact, said Michael Jaïs, the head of technology platform Launchmetrics that tracks social-media data for brands.

“Celebrities and influencers won’t be present, and it’s hard to imagine that they’ll be followed as much when they’re just in front of their screens,” Mr. Jaïs said. — Bloomberg