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The funds must flow: Capital raising in the time of crisis

By Mark T. Amoguis, Assistant Research Head

THE UNCERTAINTY caused by the coronavirus disease 2019 (COVID-19) pandemic has pushed some big firms and investors into the defense by cutting back on capital-raising activities and retreating towards safe-haven investments. Despite the pandemic, raising funds through capital markets is still possible, analysts said.

Net losses reported so far this year has led some of the country’s corporate giants to announce cuts in their capital spending. These cuts vary among firms and industries, ranging from as low as 30% to as high as 60% relative to levels in the previous year.

“Cutting costs is a normal reaction for companies in the midst of an economic crisis. However, companies, particularly those in the industrial and consumer services, should look at the current economic slowdown as an opportunity to challenge themselves to adopt innovative practices to keep up with new normal instead of waiting out the pandemic,” Philippine Stock Exchange (PSE) President Ramon S. Monzon said in an e-mail.

Amid the lingering uncertainty over the COVID-19 crisis, Mr. Monzon said bank financing continues to be among the easiest options to secure funding given low interest rates.

“However, as the risk of loan defaults increases because of the pandemic, banks are pressured to raise interest rates and be more circumspect in increasing their loan exposure to both corporations and individuals,” he said.

In a separate e-mail, SB Capital Investment Corp. said the pandemic has not changed the available funding options whether it be through debt or equity.

“As always, the viability of tapping those markets hinges on finding the right balance of risk versus return for investors/lenders. Sources of funds are generally the same with some just moving its mix,” SB Capital added.

For First Metro Investment Corp. (First Metro) President Patricio Dumlao, tapping the equity and debt markets remain “very viable and accessible.”

“Investment bankers continue to do their work, helping out companies in their fundraising through USD denominated and local currency bonds issuances and other financial instruments that suit client needs. The regulatory environment is very supportive. Market liquidity is ample, enabling market absorption,” he said.

Mr. Dumlao said that so far, First Metro has done 11 capital market transactions and currently working on four others compared with 18 in 2019.

With the previously dormant funds locked in the big banks’ reserve unleashed to the financial system, domestic liquidity grew 14.5% in July from 6.9% a year ago, preliminary data from the central bank showed.

This excess liquidity was not captured by the banks via loans to consumers and enterprises as initially expected as bank lending inched up 6.7% year on year that same month, the slowest pace in more than a decade or since the 5% growth in March 2010.

The latest results of the central bank’s Senior Bank Loan Officers’ Survey showed that amid the pandemic, majority of respondent banks imposed tighter lending standards for both enterprises and households during the second quarter, snapping 44 consecutive quarters of broadly unchanged credit standards.

BDO Capital and Investment Corp. President Eduardo V. Francisco said the bank market will always be there given the economy being a “bank-centric market” and that majority of the country’s financial resources are in banks.

EQUITIES
Despite the uncertainties, the equities market “continues to be a viable venue” for fundraising activities, Mr. Monzon said.

Most companies have delayed their initial public offering (IPO) plans this year as the market volatility remains high, with some notable exceptions. Among the notable deals in the second quarter include the P1.6-billion IPO of grocery operator MerryMart Consumer Corp. on June 15, of which the offering was twice oversubscribed. That deal saw the PNB Capital and Investment Corp. as the sole issue manager, lead underwriter and sole bookrunner for the offering.

Another example of a successful listing was that of Altus Property Ventures, Inc., which entered the PSE by way of introduction on June 26. With an initial listing price of P10.10 per share, Altus’ stock price went up to as high as P240 per share before closing at P18.50 apiece on June 26. For this transaction, First Metro was tapped as financial adviser.

Then there was also the IPO of Ayala Land, Inc.’s AREIT, Inc. — the country’s first real estate investment trust (REIT) offering. Despite tumbling in its market debut last Aug. 13, it saw a twice oversubscription by the time it ended the offer period on Aug. 3.

AREIT had tapped BPI Capital Corp. as sole global coordinator and joint bookrunner for the offering. UBS AG Singapore Branch was sole international bookrunner for the international tranche, while BPI Capital, PNB Capital and Investment Corp., and SB Capital Investment Corp. were underwriters for the domestic tranche.

PSE’s Mr. Monzon noted a number of activities the local bourse have lined up for this year such as the planned P35.92-billion IPO for fiber internet provider Converge ICT Solutions, Inc. The offering, which is targeted to begin on Oct. 13 until Oct. 19 with listing on the main board of the PSE on Oct. 26, is set to be the largest public offering in the history of the Exchange since the P28.12-billion IPO of Robinsons Retail Holdings, Inc. in 2013.

The Converge IPO had BPI Capital Corp. as the sole local coordinator, joint local underwriter and joint bookrunners, while BDO Capital & Investment Corp. will be the joint local underwriter and joint bookrunner.

“This year’s pipeline also includes AC Energy Philippines, Inc.’s stock rights offering of up to P5.38 billion and PH Resorts Group Holdings, Inc.’s estimated follow-on offering valued at P1.13 billion,” Mr. Monzon said.

In the first half of 2020, the PSE said it raised a total capital of P20.83 billion, coming from one IPO, one follow-on offering, one stock rights offering and two private placements.

The PSE had originally set a capital-raising target of P150 billion for this year, up more than 50% from the P95.22 billion capital it raised in 2019. In an interview with ANC last June, Mr. Monzon said the PSE has lowered this target to P100 billion.

BDO Capital’s Mr. Francisco also noted private equity as another funding option.

“Local conglomerates… remain on the lookout for acquisitions to buy in companies needing more capital for expansion or if there is a good fit,” he said.

DEBT MARKET
Besides bank financing, corporates can also tap the less-volatile debt capital market to augment their financing needs.

As of end-August, a total 24 corporate debt listings brought year-to-date amount to P295.03 billion, bringing the total tradable corporate debt instruments to P1.48 trillion issued by 55 companies, composed of 200 securities, data from Philippine Dealing & Exchange Corp. showed.

For BPI Capital Corp. President Rhoda A. Huang, tapping the debt market “continues to be a viable option” for local firms.

“Since the lifting of the [modified enhanced community quarantine] last June, BPI Capital has completed five Peso bond deals and three US Dollar bond deals. However, we have advised issuers that investors continue to require higher-risk premiums amid relatively low benchmark rates given uncertainties arising from the pandemic,” Ms. Huang said.

Ms. Huang said BPI Capital has been encouraging Philippine issuers to consider longer-dated dollar bonds as well as alternative structures such as green, social, and sustainable bonds.

An example of these bonds was the Bank of the Philippine Islands’ (BPI) so-called COVID Action Response bonds, in which proceeds will go towards supporting eligible micro, small, and medium enterprises. BPI Capital served as the sole selling agent for the bonds while The Hongkong and Shanghai Banking Corp. (HSBC) was a participating selling agent. BPI Capital and HSBC were the lead arrangers for the issue.

Moreover, auctions on the Treasury bills and bonds saw these papers were 3.6 and 2.7 times oversubscribed, respectively. Similar robust demand was observed in the secondary market with domestic yields moving lower by an average of 186.7 basis points compared to first-quarter levels, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

Market appetite was also observed in the sales of five-year retail Treasury bonds (RTBs). On Aug. 7, the Treasury ended the three-week public offer for the RTBs after it raised a record P516.3 billion, exceeding the P310 billion in three-year retail bonds sold in February.

State-run lenders Land Bank of the Philippines (LANDBANK) and the Development Bank of the Philippines (DBP) are the joint lead issue managers for the transaction. Other joint issue managers were BDO Capital, BPI Capital, China Bank Capital Corp., First Metro, PNB Capital, RCBC Capital Corp., SB Capital, and UnionBank of the Philippines, Inc.

OUTLOOK
Despite challenges surrounding the capital markets, market players maintain that there would still be room for capital-raising activities this year.

“BPI Capital does not foresee a significant drop in capital-raising transactions as companies continue to seek alternative funding sources for working capital requirements, capital expenditures, and refinancing transactions,” BPI Capital’s Ms. Huang said.

Even so, Ms. Huang said they might be a significant shift in the type of capital-raising transactions for the rest of the year.

“We anticipate more preference for debt and/or hybrid debt-type transactions as compared to 2019 when we had more deals in the project finance space. This will in turn affect the revenue source of the Bank as we continue to target higher revenues,” she said.

BDO Capital’s Mr. Francisco said there will still be bonds and loans but that it would be used more for refinancing.

“As rates are historically low, corporates will try to lock in these low rates and refinance. This is also why we are seeing an upsurge in US Dollar issuances as the coupon rates are attractive to Philippine companies who can hedge or have a US Dollar revenue source,” he said.

For SB Capital: “Any shifting environment would always see investors instantly gravitate towards safe haven instruments, followed by a gradual opening up of risk appetites.”

Still, SB Capital noted the single largest determinant to financial markets today to be the uncertainty, which “distorts pricing, business models, and appetites.”

“[A]n effective vaccine would reimagine the current landscape, removing the need to price in, and account for, mass uncertainty,” it said.

First Metro’s Mr. Dumlao said that aside from the trajectory of the virus infection, other factors that would influence appetite for capital raising include the policy response of governments to the health and economic crisis, potential credit rating downgrades for both sovereign and corporates, and the US elections and how it will shape US-China relations.

Palay farmgate price drops 2.2% in first week of September

THE average farmgate price of palay, or unmilled rice, fell 2.2% week on week to P17.64 per kilogram for the first week of September, with the price up 8.4% year on year, according to the Philippine Statistics Authority (PSA).

In its weekly update on palay, rice, and corn prices, the PSA said the average wholesale price of well-milled rice fell 0.6% to P38.57 while the retail price fell 0.3% to P42.23.

The average wholesale price of regular-milled rice fell 0.7% to P34.99 while the retail price fell 0.5% to P37.91.

The farmgate price of yellow corn grain fell 4.6% week on week to P12.32.

The average wholesale price of yellow corn grain fell 2.4% to P20.85 while the retail price fell 0.1% to P24.85.

The farmgate price of white corn grain fell 5.1% week on week to P13.52.

The average wholesale price of white corn grain fell 7.9% to P15.88 while the retail price fell 0.4% to P27.80.

The PSA released three weeks’ worth of data in its report. In the fourth week of August, the average farmgate price of palay fell 1.4% to P18.13. The price rose 3.9% from a year earlier.

The farmgate price of yellow corn grain fell 0.3% to P12.99, while the price of white corn grain fell 0.9% to P14.31.

The farmgate price of palay fell 0.5% to P18.04 during the fifth week of August, with the price up 8.2% year on year.

The farmgate price of yellow corn grain fell 0.1% to P12.98 while the price of white corn grain rose 0.1% to P14.33. — Revin Mikhael D. Ochave

Scaling up, French firm fashions fish skins for luxury market

SAINT-FONS, France – A French company is collecting fish skins that would otherwise wind up in restaurant trash cans, turning them into leather for use in watch straps and wallets, and pitching them at the high-end luxury market.

Turning fish skin into leather is an age-old craft. It is experiencing a revival — driven by its environmentally friendly credentials — but has yet to break into the rarefied end of the fashion industry.

Three friends, who met when studying chemical engineering near Paris and taught themselves the tanning process from scratch, are trying to change that.

“Salmon skin has a suppleness, and a finesse, it’s less than half a millimetre thick, but with a resistance which is nearly equivalent to cow leather,” said Benjamin Malatrait, one of the three friends, who co-founded a company called Ictyos.

“It has a grain which is more marked, with the scales that are a bit reminiscent of lizard,” he said at his firm’s workshop near the French city of Lyon. “Visually its quite exotic.”

Their firm has been given a six-month stint inside a startup incubator run by Paris-based global fashion giant LVMH, owner of brands such as Louis Vuitton and Christian Dior. The idea is that the incubator’s graduates land deals with LVMH fashion houses.

Malatrait said Ictyos is working with 250 clients — big brands and artisan producers — who are testing the products for use in watch straps, bags, and clothes. — Reuters

Pandemic to keep steering markets in 2nd half

By Jobo E. Hernandez, Researcher

THE CORONAVIRUS disease 2019 (COVID-19) pandemic remained the primary driver of local financial markets in the second quarter of 2020 as market players continue to adjust expectations and digest a slew of economic reports published during the period.

In an e-mail to BusinessWorld, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno attributed several factors that weighed down domestic financial markets that include, among others, the economic losses following the extension of lockdowns imposed in most parts of the country, downgrades in economic outlook, concerns on potential increase of banks’ non-performance loans (NPLs), the slowdown in remittances from overseas Filipino workers (OFWs), sharp drop in global oil prices, and concerns over a “second wave” of COVID-19 infections across the globe.

The BSP official noted the decline during the quarter was “partly tempered” by developments that include the easing in local policy rates and quarantine measures starting June that allowed some businesses to reopen.

The strict lockdowns aimed at containing the spread of COVID-19 largely contributed to the decline in the country’s gross domestic product (GDP) by 0.7% in the first quarter. Reported in May, the first-quarter result was unexpected at the time since the lockdowns only began in March. This led analysts to expect the second quarter drop to be worse given the continued lockdowns spanned the entire three-month period. This was confirmed in early August as GDP declined by 16.5% in the second quarter — the largest contraction on record based on available government quarterly data dating back to 1981.

Starting in mid-March, a strict lockdown was imposed on much of the country up until May before quarantine rules were slowly eased starting June. As most of the strict lockdown measures occurred in the second quarter, analysts expect the economy to have already bottomed out during the quarter. As of this writing, Metro Manila is now under a general community quarantine until Sept. 30 subject to changes.

Meanwhile, headline inflation averaged 2.3% in the second quarter, slower than the 2.7% recorded in the previous quarter, and closer to the lower end of the BSP’s target range of 2-4%.

The period also saw the BSP’s Monetary Board slashing policy rates by 50 basis points (bps) each on its off-cycle meeting on April 16 and on its scheduled meeting on June 25. So far, the BSP has cut benchmark rates by 175 bps this year, bringing the overnight reverse repurchase, lending, and deposit facilities at record lows of 2.25%, 2.75%, and 1.75%, respectively.

Trading remained volatile in the equities market in the second quarter with the bellwether Philippine Stock Exchange Index (PSEi) closing from a range of as low as 5,342.3 in April 2 to as high as 6,583.8 in June 9. During the period, the PSEi averaged 5,839.23 — 15.3% lower than the first-quarter average of 6892.27.

Despite this, the quarter ended strong with the index closing at 6,207.7 on June 30, 16.7% higher compared to the PSEi close of 5,321.2 in the first quarter.

Meanwhile, debt paper auctions carried out during the second quarter saw robust demand. Treasury-bill (T-bill) auctions conducted in the April-June period saw total subscription amounting to around P1.4 trillion, around 3.6 times the P392-billion aggregate offered amount.

Treasury-bond (T-bond auctions) during the same period had a total subscription amount of around P489 billion, 2.7 times more than the offered amount of P180 billion.

In the secondary market, domestic yields were lower by a range of 138.7 bps for the 91-day T-bill to 230 bps for the two-year T-bonds compared to end-March levels. On average, yields were lower by 186.7 bps during the reference period, according to the PHP Bloomberg Valuation Service Reference Rates published on the Philippine Dealing System’s website.

The peso averaged P50.45 against the dollar in the second quarter, appreciating 0.74% from the previous quarter’s average of P50.83-to-a-dollar, BSP data showed.

“In the second half of the year, the financial markets will continue to face uncertainty and downside risks stemming from the COVID-19 pandemic. These include potential business closures due to continued supply chain and market disruption; the possibility of a renewed escalation of the outbreak that may require the re-imposition of some lockdown measures,” Mr. Diokno said.

Apart from prospects of economic growth, the central bank chief said investors would likely track the domestic inflation rate, PMI (purchasing managers’ index), employment rate, number of COVID-19 infections, and business and consumer confidence to guide their financial decisions.

OUTLOOK
Mr. Diokno said the BSP foresees a “U-shaped” quarterly recovery path for the Philippine economy.

“The trough of the contraction is in [second quarter] 2020 following the lockdown during the quarter. The economy could continue to contract in the [second half] 2020, although at a slower pace, as business operations gradually resume, and firms and households adjust to the post-pandemic conditions,” he said.

Private sector analysts expect a slow recovery.

“The second quarter was still all about the pandemic with investors and almost all Filipinos monitoring COVID-19 developments both here and abroad.  Earnings reports came in as expected (on the downside) while signs of slowing economic growth momentum surfaced (PMI and unemployment data) as well as manifested (strong peso as imports fell),”ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

“I expect negative GDP figures for the balance of the year, a base effect-induced bounce in 2021 and a lower growth trajectory for the Philippines from 2022 onwards,” Mr. Mapa noted, adding the Philippine is now entering a “dirty L-shaped” recovery trend that is characterized as the economy experiencing a substantial contraction followed by a period of stagnation.

For UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion: “COVID-19 will continue to sway financial markets long after the outbreak has ended. Its implications to the different sectors (transportation, tourism, entertainment, retail) would last for a number of years. However, the extent to which it would affect these would mostly depend on the market’s risk appetite.”

“With the BSP stating that they would keep an ‘easy policy’ for the next two years, money supply would most likely remain relatively high, and would definitely have implications on the fixed income side,” he added.

For Security Bank Corp. Chief Economist Robert Dan J. Roces, the economy is expected to recover “at a gradual phase” by the third quarter due to the reopening of some business activities, but noted investor and consumer confidence “might remain withdrawn” until a vaccine becomes widely available and a fiscal plan is implemented.

“Although GDP growth has likely bottomed out in the second quarter, we expect the economy to recover in a more sluggish manner, which means that [the third- and fourth-quarter performance] would remain negative,” Mr. Roces said in an e-mail.

In a separate e-mail, the Bank of the Philippine Islands’ (BPI) Economics and Markets Research Team said volatility in the financial markets “will likely persist in the next quarters” as the pandemic persists.

“Only a vaccine or a significant improvement in the country’s health situation can completely remove this volatility,” BPI said.

Outlook summaries

EQUITIES
BSP’s Mr. Diokno: [T]he Philippine equities market will continue to see volatility amid concerns over the prolonged spread of the COVID-19 virus and its negative impact on businesses and the economy (e.g., direct impact on production by creating supply chain and market disruption; and its financial impact on firms and financial markets).

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort: Further reopening of the economies locally and worldwide and any further increase in business/economic capacity would help shore up valuations of some listed companies, from worst at the height/peak of the COVID-19 lockdowns.

UnionBank’s Mr. Asuncion: The equities market will perform slightly worse in the third quarter in light of the rapid increase in COVID-19 cases, but stock values may further drop if Metro Manila returns to a modified enhanced community quarantine. The PSEi may recover during the fourth quarter if cases decrease but will most likely not return to pre-COVID levels.

Security Bank’s Mr. Roces: Good time to buy with low prices. It is difficult to time the market but from a risk-reward standpoint, returns are already decent for the long-term investor. The market is currently not pricing in a vaccine to happen in the next 6 to 12 months, thus any developments earlier than that will surely benefit the market.

ING Bank’s Mr. Mapa: Equity markets may come under renewed pressure as earnings reports will likely be very weak given prospects for a sustained contraction.

Philippine National Bank (PNB): Our base case fair value estimate for the PSEi is currently at 5,572, while our bull case is at 6,672. In our view, the low interest rate environment would continue to provide support to share prices and prevent the index from falling close to the lows we saw in first quarter 2020 (PSE’s at 4,623 on March 19).

However, re-rating due to low valuations alone would no longer be enough. Instead, further upside from current levels would largely depend in the shape of the GDP recovery, which in turn would influence how fast corporate earnings would revert to pre-pandemic levels.

BPI: In the case of the local stock market, it may take some time before the index returns to pre-COVID levels. A substantial increase in consumer confidence is a prerequisite for this since most of the companies in the PSEi rely on household consumption.

FIXED-INCOME MARKET
BSP’s Mr. Diokno: The bond market is expected to continue to improve in the coming months, supported by the liquidity enhancing measures deployed by the BSP such as the purchases of government securities from the National Government (NG) under a repurchase agreement and banks in the secondary market.

RCBC’s Mr. Ricafort: Possible further monetary easing especially by way of further cuts in banks’ RRR and other regulatory relief measures amid relatively sluggish economic data or recovery prospects amid the recent spike in new COVID-19 cases, relatively benign inflation amid relatively weaker economic data, and the recent increase in excess peso liquidity in the financial system amid various liquidity infusion measures by monetary authorities would still help keep local interest rates relatively low…

However, offsetting risk factors for the fixed income market is any increase in supply…of bonds/fixed income securities locally and worldwide to finance the huge fiscal/economic stimulus measures versus COVID-19 and the resulting wider budget deficits that lead to some pick up in debt-to-GDP levels.

UnionBank’s Mr. Asuncion: Yields will continue to be down for the third quarter and the rest of the year as the central bank tries to stimulate the economy by injecting liquidity into the market.”

Security Bank’s Mr. Roces: We expect [fixed income] to remain well supported with good liquidity. The BSP aims to keep rates low so the downside risks to the market may be minimal, thus giving steady returns.

ING Bank’s Mr. Mapa: Accommodative monetary policy and low inflation should be supportive of bond markets, with particular downward pressure for the short end of the curve.  Depends now on the borrowing plan of the government.

PNB: For existing fixed income positions, mark-to-market gains largely depend on how much liquidity the BSP will inject in the system without using the policy rate, such as the RRR. With CPI growth climbing near the middle of the BSP’s 2-4% band, we believe that the most appropriate monetary accommodation tool for the BSP to support growth is no longer a policy rate cut. Instead, we believe it should implement another 200-bp cut in the RRR but keep the policy rate at 2.25%.

BPI: Local bond yields may remain low in the near term given the monetary support provided by the BSP. However, risks related to inflation and the exchange rate remain elevated and can put a floor on further policy rate cuts in the near term.

FOREIGN EXCHANGE (FX) MARKET
BSP’s Mr. Diokno: In the near term, the peso is expected to continue to reflect emerging demand and supply conditions in the FX market. The impact of weaker inflows owing to the decline in exports, tourism receipts, [overseas Filipino] remittances and capital inflows is expected to be offset by favorable investor sentiment over the strong position of the economy, relative to other emerging economies, in terms of debt management and FX cover.

RCBC’s Mr. Ricafort: The sharp decline in imports especially the height of the COVID-19 lockdowns and the relatively slow recovery thereof at the moment, as well as still lower global oil prices by more than US$20 since the start of 2020, have reduced the demand for US dollars that are needed to pay for the country’s import bills.

UnionBank’s Mr. Asuncion: The Philippine peso will likely continue its strength vis-à-vis the weakness of the US dollar due to the sheer number of projected coronavirus disease 2019 (COVID-19) cases in the US and how the Trump administration has responded to the pandemic.

Security Bank’s Mr. Roces: [W]ith the general weakness of the US dollar and [Overseas Filipino] remittance flows plus expected contractions in imports, [US dollar-peso] might see some sustained strength until the end of the year, with risks coming from rising COVID-19 cases and US-China trade headlines.

ING Bank’s Mr. Mapa: [Peso] should continue to outperform the region as corporate demand for the [dollar] remains tepid, given the deteriorating economic environment.  With the economic engines stalling, the need for imports has fallen just as sharply, pointing to a current account surplus for as long as the Philippines remains in recession.

PNB: We pencil in a 49 to 50 [US dollars-peso] by the end-2020 on the assumption that the Philippines’ import cover will remain close to 8.5 months.

BPI: The decline in imports and international travel may continue to support the peso. Furthermore, foreign portfolio inflows in the local bond market amid expectations of additional monetary easing may amplify the strength of the peso. However, a persistent and more severe decline in remittances may tilt the balance towards peso depreciation.

Auto groups report 12.8% sales decline in Aug.

Two-week MECQ ends three-month industry rally

FOR SURE, there was quite a bit of rejoicing (as well as a sigh of relief) over the three consecutive months of growth registered by the auto industry following that infamous April when member companies of the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA) sold a combined 133 units — an all-time low.

Although the figures were nowhere near the pre-pandemic vigor of the industry, the May, June and July totals of 4,788, 15,578 and 20,542, respectively, had been a breath of fresh air for an industry reeling on account of the quarantine lockdown necessitated by the pandemic. Last year, the two organizations jointly accounted for sales of almost 370,000 units. This year, the “recalibrated” target is down to 240,000.

But now, even that modest figure may be in jeopardy as the momentum appears to have been stymied by a speed bump. August CAMPI/TMA sales dropped by 12.8% month on month to 17,906 units.

In a release, CAMPI President Atty. Rommel Gutierrez attributed the decrease to lowered business and consumer confidence amid the general economic slowdown. “Spending remains a challenge, especially for big-ticket items such as cars,” he said. “This has resulted in another auto sales decline.”

Toyota Motor Philippines Corp. (TMP) continued to lead total vehicle sales with 8,044 units sold, cornering 44.92% of the market. Still, this figure represents a 8.9% dip month on month, as TMP had sold 8,833 units in July. Compared to the August 2019 sum (13,083), TMP sales last month were down 38.5%. Completing the top five overall in August 2020 (in order) are: Mitsubishi Motors Philippines Corp. (2,621 units [down 16.8%], 14.64% share); Nissan Philippines, Inc. (1,881 units [down 11%], 10.5% share); Suzuki Philippines, Inc. (1,345 units [down 24.4%], 7.51% share); and Ford Motor Company Philippines, Inc. (1,233 units [down 3.5%], 6.89% share).

Year-on-year industry sales slipped by 39.5% from 29,599 units sold in August last year; year-to-date total is 123,489 — a 47.6% drop versus the same period in 2019.

“Economic recovery can be a gauge of the industry’s future performance, but it also depends on the policy environment. Restrictive policies such as safeguard duty will only limit the industry’s capability to navigate the current crisis,” added Atty. Gutierrez.

The auto group’s head is referring to the Department of Trade and Industry’s (DTI) “safeguard investigation on imported automobiles following a petition filed by the Philippine Metalworkers Association (PMA) that pre-dates the COVID-19 pandemic,” yet Atty. Gutierrez expressed confidence that the government agency “will consider the impact of the pandemic on auto industry recovery.” Last year, the PMA asked the DTI to rule on whether “a surge in automotive imports is causing injury to the domestic industry,” according to a BusinessWorld report.

I reached out to the CAMPI head, who expressed hope amid the setback. “Despite the August decline, we are still maintaining the revised target.” He stressed though that the DTI’s “safeguard measure may not be appropriate at this time as this will disrupt our recovery efforts.”

Meanwhile, in a separate interview with “Velocity,” Philippine Automotive Dealers Association (PADA) President Willy Tee Ten said that the sales drop in August was caused in part by the implementation of the two-week modified enhanced community quarantine (MECQ) from Aug. 4 to 18. If you recall, the stricter quarantine level was lobbied by the country’s medical community, already (and is still) reeling from the number of COVID-19 patients.

Mr. Tee Ten, also the head of the Autohub Group which handles more than 30 automotive brands, added that the industry “is scrambling right now,” evidenced in promos and other measures to spur sales.

Nonetheless, easy-payment schemes and all the freebies in the world will not be able to close a sale without, well, car loans. He reiterated something that many other auto executives I have had the chance to talk to over the last months chorused: The role of banks in the industry’s recovery cannot be overstated — especially since up to 80% of car purchases are enabled by financial instruments.

This is understandable as, owing to the economic disruption, banks have become very wary about approving loans in general. Car loans appear to be hit especially hard. From a high 50%-60% pre-pandemic approval rate, it’s now down to only 10%-20%, shared a source. In fact, some banks reportedly aren’t giving out car loans at all.

Another hurdle facing auto dealerships in particular is literally the ground upon which these are built. Not all landowners have been sympathetic to their lessees in terms of expecting the same and regular rent, and the marked decrease in business has left many struggling, said Mr. Tee Ten. The situation is thankfully much better in the provinces, he noted, where rents and salaries are lower — not to mention that competition is much less than in urban areas.

On another front, PADA wants to talk to the government with hopes of offering up its dealership facilities to host the Motor Vehicle Inspection System (MVIS) activities of the Land Transportation Office (LTO) — effectively easing the burden of car owners who have to go through the mandatory testing prior to registration. Opening this process to dealerships will definitely relieve the bottleneck.

All told, Mr. Tee Ten said he would be happy to see 220,000 units in sales for 2020, and he’s crossing his fingers that no more hard lockdowns are forthcoming. Frankly, if that happens, the industry will be hard-pressed to reach even that figure.

Peso may strengthen on hope for economic rebound

THE PESO will likely strengthen further this week as the markets anticipate progress in economic bills in Congress and a reduction in cases of coronavirus disease 2019 (COVID-19).

The peso rebounded to P48.395 against the dollar last Friday, up by 11.5 centavos from its P48.51 finish on Thursday, data from the Bankers Association of the Philippines showed.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the peso rose ahead of the release of the bond auction results from the Bangko Sentral ng Pilipinas (BSP).

The central bank auctioned off 28-day bills on Friday worth P20 billion, making a full award of the short-term debt papers as the offer was twice oversubscribed.

Meanwhile, a trader said the peso strengthened following the approval by President Rodrigo R. Duterte of the second stimulus package under Bayanihan to Recover as One Act or Bayanihan II.

For this week, Mr. Ricafort expects the peso to rise further as lawmakers advance some economic bills to help boost business activity amid the COVID-19 crisis.

“The major upcoming market leads include any further progress by lawmakers on key reform measures such as CREATE, FIST and GUIDE bills, some moves to further reopen the economy and improve economic recovery prospects,” Mr. Ricafort said in an e-mail over the weekend.

Meanwhile, a trader said in an e-mail that the peso may climb as government agencies deploy funds under the Bayanihan II law, especially to the health sector.

Mr. Ricafort said other factors which could affect peso-dollar trading this week include data on the country’s budget deficit due for release on Sept. 22 and Federal Reserve Chairman Jerome Powell’s semi-annual testimony about the US economy to lawmakers on Sept. 22-23.

For this week, Mr. Ricafort expects the peso to move from P48.25 to P48.60 versus the dollar while the trader sees the local currency ranging from P48.35 to P48.70. — K.K.T. Jose

PLDT says lockdown left 300 areas inaccessible for repairs, installations

PLDT Inc. and its wireless subsidiary Smart Communications, Inc. said they have asked the government to make more than 300 areas accessible for installation and repair works.

The telecommunications services providers said they recently wrote a letter to the Department of Information and Communications Technology (DICT) and Department of the Interior and Local Government (DILG),    informing the agencies that they are unable to enter more than 300 sites in Metro Manila and the provinces of Cavite, Laguna, Quezon, Rizal, Ilocos Norte, Cagayan, Tarlac, Nueva Ecija, Bulacan, Palawan, Iloilo, Capiz, Samar, Misamis Oriental and Zamboanga del Norte due to the community quarantine measures.

“The PLDT Group would like to respectfully appeal to the DICT and DILG to direct local government units and other concerned sectors to enjoin their immediate cooperation in granting the PLDT Group access to its facilities within their respective areas to conduct critical works,” PLDT and Smart said in an e-mailed joint statement over the weekend, quoting their letter to DICT Secretary Gregorio B. Honasan II and DILG Secretary Eduardo M. Año.

The two companies noted that quarantine restrictions imposed by some local governments have impacted their performance of  essential activities like “service restoration, maintenance, installation works, capacity expansion, replacement and upgrade of critical facilities and other urgent work.” 

Alfredo S. Panlilio, Smart president and chief executive officer and PLDT chief revenue officer, said: “The initiative of the government to make it easier for us to build more towers quicker will be a big help in terms of improving coverage.”

Smart has secured a total of 211 building and preconstruction permits from the government for the towers it will build in Metro Manila and in at least 20 provinces.

These permits, according to PLDT, cover towers to be built in Metro Manila and in the provinces of Batangas, Rizal, Palawan, Bohol, Cebu, Iloilo, Negros Occidental, Guimaras, Leyte, Samar, Southern Leyte, Camiguin, Davao Del Norte, Davao Oriental, Zamboanga del Sur, Zamboanga Sibugay, Misamis Oriental, North Cotabato, Lanao del Sur and Maguindanao, among others.

The DICT has also issued provisional certificates to 23 tower companies, allowing them to own, construct, manage, and operate common towers hosting cellular sites.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. — Arjay L. Balinbin

Far Eastern University, Inc announces schedule of Annual Stockholders’ Meeting

Investors lukewarm on Jollibee Foods after FTSE rebalancing

By Michelle Anne P. Soliman

JOLLIBEE FOODS CORP. (JFC) was one of the actively traded stocks last week after the rebalancing of a global index  while market players look for clues for the pandemic-battered company’s recovery.

A total of 8.14 million JFC shares worth P1.08 billion were traded from Sept. 14 to 18, data from the Philippine Stock Exchange showed, making it the eighth most actively traded issue last week.

Shares in JFC finished the week at P130.20 apiece, four percent lower from a week ago. Since the start of the year, they have tumbled 40%.

“Investor sentiment for JFC over the past months had been adversely impacted by the pandemic’s effect on the business,” China Bank Securities Corp. Research Director Rastine Mackie D. Mercado said in an email interview.

“JFC saw higher trading volumes through the tail end of this week, likely driven by fund flows relating to the FTSE rebalancing,” he added.

In its semi-annual review on Sept. 10, FTSE Global Equity Index Series — Asia Pacific ex-Japan ex-China Regional Index announced changes in the index, which include JFC being moved to the mid-cap index from large cap effective at the end of business day of Sept. 18.

Meanwhile, JFC unveiled on Wednesday the opening of its third Jollibee restaurant in Europe as well as its 45th store in North America.

JFC President and Chief Executive Officer Ernesto Tanmantiong said in a statement that the company continues to grow both in North America and Europe.

He also said the Jollibee brand is seeing double-digit growth in North America with the Chowking and Red Ribbon brands also performing well. The company’s expansion plans in Europe continues, he said.

Before the year ends, the homegrown brand plans to open more stores in California and Canada. After its Liverpool launch, Jollibee, likewise, eyes another one in Leicester, England, putting it on track to launch 50 restaurants in Europe in three to five years.

“This provides some insight to the business’ recovery and growth prospects, which may help buoy investor sentiments moving forward,” Mr. Mercado said.

JFC’s revenues declined by a fourth to P62.76 billion during the first semester. It posted an attributable net loss of P11.96 billion, a reversal from a P2.50-billion net profit in the same period last year.

Aside from Jollibee, Chowking, and Red Ribbon, JFC also operates other quick-service restaurant brands such as Mang Inasal, Burger King, Highlands Coffee, Pho24, Yong He King, Hong Zhuang Yuan, Hard Rock Café, Dunkin’ Donuts, Smash Burger, Tim Ho Wan, Tortas Frontera, The Coffee Bean and Tea Leaf, and Panda Express.

As of end-June, it has 5,874 stores located across the globe.

Summit Securities, Inc. President Harry G. Liu said the lack of demand for Jollibee products as consumers stay home due to the pandemic, coupled with the launching of new stores, makes the company “financially hampered.”

“The way I look at it, if you are going to get into Jollibee, it can only reverse itself once everything is in place —  once the world economy is stable after the pandemic,” Mr. Liu said in a phone interview.

“Other than that, Jollibee will have to readjust their marketing efforts to the new normal so they can keep up with the financial forecast,” he said.

“Forward prospects for the company, alongside other players in the food service industry, will remain largely contingent on developments around the pandemic,” Mr. Mercado said.

Investors will look for cues in the third-quarter earnings report as this will provide a better snapshot of how the recovery in the business is shaping up, he added.

For this week, JFC’s stock price “will likely trend sideways over the short term between support and resistance,” Mr. Mercado said, placing the company’s support and resistance prices at P126 and P141, respectively.

“For now, as far as Jollibee is concerned, the best thing to do is to get into the fundamental price level where it is considered cheap to buy for the long term,” Mr. Liu said, providing support and resistance levels at P120 and P140, respectively.

Yields on gov’t debt rise

YIELDS ON government securities (GS) were little changed last week as market players stayed on the sidelines ahead of the central bank’s maiden bond offering last Friday, with some investors tracking last week’s auction results.

GS yields increased by 6.6 basis points (bps) on average week on week, based on the PHP Bloomberg Valuation Service Reference Rates as of Sept. 18 published on the Philippine Dealing System’s website.

“The lack of fresh developments and a market still absorbing a likelihood that the BSP (Bangko Sentral ng Pilipinas) will keep its rates steady for the year triggered market players to trim positions and give up the bond market’s gains for a fourth straight week,” Robinsons Bank Corp. peso sovereign debt trader Kevin S. Palma said in a Viber message.

“Trades were centered mostly on the recently issued retail Treasury bonds (RTB) 05-13, where it rose up to the 2.90% level until bargain hunters put a lid to the uptick to finish the week lower to around 2.80% level,” he added.

ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said yields continued to adjust from year-low levels in August as investors continued to take profits moving into the fourth quarter.

“Selling pressure pushed the recent RTB 5-year (RTB 05-13) to trade at a discount as investors rebalanced portfolios and reduced risk,” Mr. Liboro said in an e-mail.

“Similar selling pressure was seen on the less liquid long-tenor (12-year to 20-year) portion of the yield curve before bargain hunters reinstated positions with yields 50-60 bps higher from lows hit in August,” he added.

In a market report, UnionBank of the Philippines, Inc. said short-term papers “moved sideways with an upward bias” ahead of the BSP’s maiden debt offer last Friday.

“As market participants opted to stay on the sides awaiting results of BSP’s first debt sale, trading volume eased,” UnionBank said.

The central bank made a full award of its maiden 28-day securities on Friday, raising P20 billion as planned as the papers fetched an average rate of 1.8355%. The offer was around 2.2 times oversubscribed, with total tenders reaching P43.360 billion.

Yields went up across-the-board at the secondary market last Friday. At the short end of the curve, yields on the 91-, 182-, and 364-day Treasury bills (T-bill) increased by 0.9 bp, 2.9 bps, and 0.4 bp, respectively, to 1.210%, 1.525%, and 1.832%.

At the belly, the rates of the two-, three-, four-, five-, and seven-year Treasury bonds (T-bonds) climbed by 3 bps (2.201%), 6.2 bps (2.438%), 9.7 bps (2.628%), 11.4 bps (2.776%), and 7.1 bps (2.922%), respectively.

At the long end, the yield on the 10-year debt paper increased by 5.8 bps to 2.996%. The rate on the 20-year bond also went up 9.8 bps to 3.822%, while that of the 25-year paper increased 15.5 bps to close at 3.854%.

“This week’s story will still be a tug of war battle between bear sellers and bargain hunters. Hence, very strong two-way interest may persist with some investors looking to put their excess liquidity into work in the GS market with some looking to trim positions as leads dry-up onshore,” Robinsons Bank’s Mr. Palma said.

“The local market may also take a cue from steepening pressures on US Treasuries,” UnionBank said in its report.

ATRAM Trust’s Mr. Liboro said investments will be watching this week’s auction of 10-year debt papers worth P30 billion “for clarity on short-term sentiment.”

“We anticipate decent demand for the security at the three-percent level and, given the recent adjustment higher in yields, expect yields to consolidate and drift gradually lower if it clears at that level,” he said. — Lourdes O. Pilar

Watch News (09/21/20)

Rolex’ new line inspired by the Oyster Perpetual

THE NEW line of watches for 2020 for Rolex is centered on the Oyster Perpetual line. First introduced in the 1930s, it follows in the footsteps of its older brother, the 1926 Oyster.

The Oyster Perpetual Submariner and Oyster Perpetual Submariner Date, professional divers’ watches par excellence (the original Oyster was used by British swimmer Mercedes Gleitze, the first woman to swim across the English Channel during her attempts) are unveiled with a redesigned and slightly larger case. They are equipped respectively with calibre 3230, launched this year, and calibre 3235 (both movements incorporate the Chronergy escapement, developed and patented by Rolex, and offer a power reserve of approximately 70 hours). The new-generation Oyster Perpetual Submariner and Oyster Perpetual Submariner Date are presented with an updated design, characterized by a slightly larger 41 mm case and a bracelet with a broader center link. True to the original model, the new Submariner – in Oystersteel – has a black dial and matching Cerachrom bezel insert. The first version of the Submariner Date is also made of Oystersteel and brings together a black dial and green bezel insert. A second, yellow Rolesor version of the watch (combining Oystersteel and 18-carat yellow gold) has a royal blue dial and blue bezel insert. The third, an 18-carat white gold version, features a black dial and blue bezel insert.

The Oyster Perpetual Datejust 31 is presented in a white Rolesor version (combining Oystersteel and 18 carat white gold) and features dials in a variety of colors, with either index hour markers or Roman numerals made of 18 carat white gold. The Rolesor version boasts of a diamond-set bezel surrounding an aubergine, sunray-finish dial with 18-carat white gold Roman numerals – the VI is set with 11 diamonds. The three other versions, all with a fluted bezel, are fitted respectively with a mint green, sunray-finish dial, a white lacquer dial, and a dark grey, sunray-finish dial. These watches are fitted with calibre 2236, which includes the Syloxi hairspring, developed and patented by Rolex. They have a power reserve of approximately 55 hours.

The Oyster Perpetual Sky-Dweller is fitted with an Oysterflex bracelet for the first time. The innovative, high-performance elastomer bracelet on this 18-carat yellow gold version has an Oysterclasp and the Rolex Glidelock extension system for enhanced comfort on the wrist. It is the first watch in the Classic category to receive this Rolex-patented bracelet. This yellow gold version with a bright black, sunray-finish dial offers the high-performance elastomer bracelet with an Oysterclasp and the Rolex Glidelock extension system, which allows fine adjustment of the bracelet for optimal comfort on the wrist. The Oyster Perpetual Sky-Dweller is equipped with calibre 9001, one of the most complex movements to be developed and manufactured by Rolex. This calibre includes a blue Parachrom hairspring, manufactured by the brand in an exclusive paramagnetic alloy, and offers a power reserve of approximately 72 hours.

Like all Rolex watches, they carry the brand’s own Superlative Chronometer certification, symbolized by a green seal. This certification guarantees that they satisfy performance criteria which exceed watchmaking norms and standards in terms of precision, water-proofness, self-winding, and power reserve. The certification is coupled with an international five-year guarantee.

Patek Philippe updates its pilot-style watches

WATCH pioneer Patek Philippe has released an updated line of pilot-style watches. The brand introduces the Ref. 7234G-001 Calatrava Pilot Travel Time, inspired by the brand’s aviator’s watches from the 1930s. It’s also a slight update from 2015’s Ref. 5524G.

The updated version has two time zones (in white or rose gold and with two case sizes) as well as the Alarm Travel Time, a grand complication with a 24-hour alarm, not counting several limited editions. As a medium-sized version of the Ref. 5524G launched in 2015, the Ref. 7234G Calatrava Pilot Travel Time has a diameter of 37.5 mm to fit women’s and men’s wrists.

The round Calatrava case in white gold is sleek with a flat and slightly beveled bezel as well as a caseband that merges almost seamlessly with the strap lugs. The blue lacquered dial, inspired by aviator’s watches, is highly legible even in the dark thanks to applied white-gold numerals filled with a white luminous coating and broad luminous baton hands made of blued white gold. The face is decidedly technical yet timelessly elegant.

The self-winding caliber 324 S C FUS movement consists of 294 parts and features the Travel Time system for displaying a second time zone. All it takes is the activation of one of the two pushers in the left-hand case flank to move the luminous local-time hour hand clockwise (with the lower pusher) or counterclockwise (upper pusher) in one-hour increments. During such adjustments, the local time hand is disconnected from the movement, so the accuracy of time displayed by the minute and seconds hands is not compromised. The skeletonized hour hand continues to indicate home time. Both time zones have separate day/night indicators to simplify time setting on the go and to prevent unintentionally waking up loved ones with a phone call in the middle of the night. As long as the watch owner is at home, the two hour hands are superposed. The two time-zone pushers are equipped with a patented safety system that prevents unintended adjustments of the local time setting.

The analog date at 6 o’clock shows the date in three-day increments to improve legibility without cluttering the scale. A useful feature for travelers is that the date is always synchronized with local time, because the time-zone pushers also increment or decrement the date if the local time hour hand passes midnight either clockwise or counterclockwise.

The new Ref. 7234G is worn on a shiny navy blue calfskin strap secured with a clevis prong buckle in white gold. It is reminiscent of the harnesses that allowed pilots to keep their parachutes and survival kits readily deployable. It includes a second calfskin strap in vintage brown with contrast stitching much like the belts for classic pilot overalls. Both formats of the Calatrava Pilot Travel Time are also available in rose gold with brown black-gradated dials (Refs. 5524R and 7234R).

Lucerne holds its Great Watch Sale

LUCERNE is opening the doors of Le Temps in Newport City for the Great Watch Sale of 2020 which will run until Oct. 31. The event is exclusive to BDO Cardholders, and pre-registration is required, with only five people allowed in the store at certain time slots, from noon to 7 p.m. Thirty brands are part of the sale, including Omega, Breitling, Longines, Tissot, Philip Stein, Baume & Mercier, Certina, Ball, and Bremont. For more information and for registration details, visit facebook.com/TGWSale.

Shares may continue to drop amid uncertainties

By Denise A. Valdez, Senior Reporter

PHILIPPINE SHARES may continue falling this week due to the lack of a strong catalyst that could push it up and help it stay at the 6,000 level.

The benchmark Philippine Stock Exchange index (PSEi) gave up 34.62 points or 0.58% to close at 5,908.90 on Friday.

Week-on-week, the PSEi ended flat, shedding 59.06 points or 0.99% to reverse the gains it booked in the prior week.

Value turnover grew 23% to an average of P5.85 billion. While foreign investors were net sellers the whole week, net outflows dropped 76% to an average of P751.2 million

“So far, confidence towards the local market remains low due to the lack of an impetus that could boost appetite amid the lingering uncertainties in our economy and in our COVID-19 (coronavirus disease 2019) situation,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a mobile message.

He noted that net value turnover averaged P4.9 billion, down against the year-to-date average of P5.9 billion, signifying investors prefer to stay on the sidelines. 

The Philippines continues to record thousands of new COVID-19 cases every day, which worries investors of the likelihood of a return to regular business operations soon.

“[A]s the market still lacks a strong positive catalyst, we may see more selling pressures (this) week,” Mr. Tantiangco said. “Value turnover could remain thin while net foreign selling may continue.”

Despite this, online brokerage 2TradeAsia.com said the new P165.5-billion stimulus package of the government may help boost recovery for many sectors.

It listed specific provisions to drive this, such as the 60-day grace period for loans, extension of maturities of debt instruments, easing of competition rules on mergers and acquisitions, P24-billion budget for agriculture and P4-billion budget for tourism.

“[P]rice action seeks equilibrium and catalysts are needed to propel investor appetite higher. In the PSEi’s case, looming fundamental movers include the (central bank’s) policy meeting (on Oct. 1) and third quarter earnings reports beginning October,” 2TradeAsia.com said.

The brokerage is putting immediate support for the market at 5,750 and resistance within 6,000-6,170. Philstocks’ Mr. Tantiango sees the PSEi ranging within 5,700 to 6,100.

Global equity markets slid on Friday as investors sought direction after last week’s US Federal Reserve meeting and a jump in coronavirus cases in Europe rattled sentiment, while gold rose and safe-haven buying lifted the Japanese yen.

On Wall Street, the S&P 500 lost 37.55 points or 1.12% to 3,319.46 and the Nasdaq Composite dropped 117.00 points or 1.07% to 10,793.28. The Dow Jones Industrial Average fell 244.56 points or 0.88% to 27,657.42. — with Reuters

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