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Gov’t fully awards T-bills as yields decline further

THE GOVERNMENT fully awarded the Treasury bills (T-bill) it offered yesterday as rates declined across all tenors on the back of dovish remarks from central bank officials here and abroad and strong liquidity.

The Bureau of the Treasury (BTr) made a full award of T-bills worth P15 billion yesterday as its offer was more than thrice oversubscribed, with tenders totalling P45.8 billion.

Broken down, the government raised P4 billion as planned via the 92-day T-bill, with tenders reaching P10.76 billion. The tenor’s average rate dropped to 3.254% yesterday, 14.4 basis points (bp) lower than the 3.398% fetched during the Aug. 6 offering.

For the 183-day debt papers, the Treasury fully awarded P5 billion as programmed out of bids worth P14.11 billion. The average yield declined 20.6 bps to 3.471% from the previous offer’s 3.677%.

The government also raised P6 billion as planned via the 365-day T-bills, with tenders amounting to P20.885 billion. The one-year tenor’s average rate declined 26.2 bps to 3.636% from the 3.898% logged during the previous T-bill offering.

The T-bill tenors were adjusted due to the advance settlement date of Aug. 20, with Aug. 1 being a non-working holiday.

At the secondary market yesterday, the three-month, six-month and one-year T-bills were quoted at 3.369%, 3.491% and 3.706%, respectively, based on the PHP Bloomberg Valuation Service Reference Rates.

Deputy Treasurer Erwin D. Sta Ana said the continued decline in T-bill rates was caused by dovish remarks from officials of central banks such as the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve, as well as the trade dispute between the world’s two largest economies.

“There are several triggers. Pronouncements from the BSP for more manageable inflation in the third and probably in the fourth quarter as the government mentioned just recently. Information about further cuts on the RRR (reserve requirement ratio) and even in the policy rate not only here but also discussions with the Fed. And then there’s that continuing trade dispute between US and China,” Mr. Sta Ana told reporters after Monday’s auction.

“So it points to maybe a slightly lower rate moving forward but we can’t just pinpoint when it is going to stabilize,” he said.

In separate interviews, BSP Governor Benjamin E. Diokno hinted on another cut in key policy rates as well as a 25 bps cut in big banks’ RRR as early as next month.

Meanwhile, markets are betting on another cut from the US central bank amid rallying US Treasuries and Washington’s ongoing trade war with Beijing.

The US Treasury bond yield curve inverted last week for the first time since 2007, in a sign of investor concern that the world’s biggest economy could be heading for recession.

The inversion — a situation where shorter-dated borrowing costs are higher than longer ones — saw US two-year note yields rise above the 10-year bond yield.

US President Donald Trump and top White House officials dismissed concerns that economic growth may be faltering, saying on Sunday they saw little risk of recession despite a volatile week on global bond markets, and insisting their trade war with China was doing no damage to the United States.

Sought for comment, a bond trader said strong domestic liquidity and fears of a looming US recession drove T-bill rates lower.

“The biggest factor is the domestic liquidity, as seen in the tenders for the auction. And definitely supported by the recession seen by analysts in the US economy,” Amalgamated Investment Bancorporation peso fixed-income trader Rocky A. Bautista said.

The government is set to borrow P230 billion from the domestic market this quarter through T-bills and Treasury bonds.

It is looking to raise P1.189 trillion this year from local and foreign sources to fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product.

TREASURY PLANS
Meanwhile, Mr. Sta Ana said the any domestic pre-funding for next year’s spending needs will depend on the ongoing implementation of the government’s catch-up plan, while offshore borrowings are likely done for the year.

“Depending on the catch-up in the spending towards the end of this quarter or fourth quarter, we still have that option for domestic [pre-funding],” Mr. Sta. Ana said.

He said they are currently working with the market, regulators and private sector for a capital market blueprint with a comprehensive three- to five-year road map for priority programs.

“Well, basically, we’re working with the market now on the capital market blueprint. Not only GS (government securities), although that’s obviously our lookout,” he said.

The official added that the Treasury may announce new market makers for government securities in November.

“So now we’re looking at the score cards — so who’s in, who’s out. There’s still an opportunity to catch up for those that did not make the cut but it’s very preliminary at this time,” he added.

The Treasury in December 2017 named 10 market makers under its Enhanced Government Securities Eligible Dealers program. The selection criteria include bond volume, bill volume, auction participation, bid efficiency, as well as the volume and number of trades on government securities.

Some privileges of market makers include the submission of both competitive and non-competitive bids in primary auctions of regular issues subject to max number of bids to be determined by Treasury bureau; participation in second round auctions; due consideration on participation in special issues and liability management transactions of the bureau; and participation in market consultations conducted by the Treasury, among others.

Mr. Sta Ana added that the Treasury is also trying to “revitalize” the repurchase or repo market and is planning to expand this to include to non-banks such as insurance companies and funds as the interbank repo market has not attracted enough people.

“[Due to] the market conditions over the past year and early this 2019…people shun away from trading, so that’s where the repo market should be. That’s what the repo market should be addressing,” he said. “So even when markets are difficult, you have a mechanism where participants can actually hedge their positions or get more liquidity. Apparently it’s not there.”

However, he said such plans are still being discussed.

The BSP, the BTr and the Securities and Exchange Commission set up the repo market in 2017 where banks could buy and sell securities which will generate liquidity.

Under a repo agreement, one party sells peso-denominated debt papers like T-bills and bonds to another dealer with the promise to buy these back at a set price and a future date. In the process, the seller gets hold of short-term liquidity to hand out fresh loans and service client withdrawals, among others. — B.M. Laforga

New DMCI Homes QC condo to rise near MRT station

DMCI PROJECT Developers, Inc. is building a new residential condominium just a few steps away from the Metro Rail Transit Line 3 (MRT-3), and a proposed subway station.

The Crestmont is located on a 3,000-square meter property along Panay Avenue in South Triangle, Quezon City. The 50-storey building will offer units with one to three bedrooms, with sizes ranging from 33 square meters (sq.m.) to 84.50 sq.m. Price of units range from P5.62 million to P13.43 million.

“As its name signifies — Crestmont means impressive peak — the condominium project will offer ample living spaces and premium amenities suited for today’s hectic yet still family-oriented lifestyle,” DMCI Homes said.

The resort-inspired project will feature units with bigger windows, spacious balconies and efficient air conditioning system. It will have a Sky Deck pool, a first in DMCI Homes’ projects.

The Crestmont is expected to be ready for occupancy by September 2025.

Kris Aquino’s horror film pulling out from MMFF

WHAT WAS supposed to be Kristina Bernadette “Kris” Aquino’s comeback horror film is pulling out from the Metro Manila Film Festival (MMFF), though no formal statement has come from the festival’s executive committee (Execom).

“Quantum Films [had a lengthy] discussion [with the MMFF regarding the] request for the change of lead actor from Derek Ramsay to Gabby Concepcion. The Rules Committee of MMFF invoked [a rule] which states the [need for the] Execom’s approval since the letter of request was submitted [on] Aug. 5 which is five days after the set deadline. The final recommendation is to deny the request of Quantum Films,” Ms. Aquino, who is one of the film’s producers aside from being one of its stars, posted on her Instagram account on Aug. 16.

In a separate post, Ms. Aquino explained that Mr. Ramsay, who was originally cast as the lead in the film (K)Ampon, backed out on Aug. 2 citing prior commitments. He currently stars in GMA7’s primetime TV series, The Better Woman.

Ms. Aquino was informed that Mr. Ramsay backed out on Aug. 3 and by midnight of the next day, the movie’s producers had managed to get Mr. Concepcion to agree to do the role and sent a letter of request to change the lead actor on Aug. 5.

The denial recommendation is “premised on the ground that it was filed out-of-time,” and Ms. Aquino said on the post that if they insist on changing the lead actor to Mr. Concepcion, the film will be disqualified from participating in the MMFF in December.

As of press time, no official statement has come from the MMFF Execom regarding the fate of the film.

“I was raised to abide by the rules. We are not the lead producer for (K)Ampon. So unfortunately, my return to horror was not meant to be for MMFF 2019,” Ms. Aquino wrote.

The film was to be Ms. Aquino’s first horror film since 2014’s Feng Shui 2.

This is not the first entry to this year’s MMFF that had a cast change as Nadine Lustre, who was supposed to star in the Filipino adaptation of the Korean movie The Miracle in Cell No. 7, backed out in July because of health issues. Bela Padilla has replaced her.

“I have read suggestions to appeal [but] I was raised to have delicadeza. The members of the executive committee are friends, one is one of my closest friends that’s why I can’t do it,” Ms. Aquino said in a separate post.

She lamented that aside from not doing a film she so wanted to do, they will have to pay “several millions” in MMFF bond, and to production staff, crew, and artists.

“No blame game, but to clear my name, I was concerned about shooting until we had the approval of the MMFF rules committee, but I wasn’t the producer in charge,” she added.

The film is produced by Quantum Films though Ms. Aquino is also an investor.

(K)Ampon was one of the first four films chosen as official entries from scripts to what is considered the country’s biggest film festival. The other three entries chosen were The Miracle in Cell No. 7, Mission Unstapabol: The Don Identity, and Momalland.

The four finished films chosen as entries will be announced at a later date, completing the eight MMFF official entries.

The MMFF runs from Dec. 25 to Jan. 7, 2020 in cinemas nationwide. — Zsarlene B. Chua

Spotify to test a more expensive version of its service

SPOTIFY Technology SA plans to sell a more-expensive version of its music service in Scandinavia, a test to see whether it can raise prices around the world, according to people familiar with the matter.

Spotify will raise the price of its family plan by about 13%, said the people, who asked not to be identified because the increase hasn’t been announced. The test doesn’t mean Spotify will raise prices elsewhere or do so permanently in Scandinavia, they said. The company declined to comment.

Raising prices could boost revenue in markets where Spotify already has a strong presence. The company is based in Stockholm, and its music service is the dominant player across Northern Europe. The current family plan costs about $15 a month and lets up to five people use the service. Spotify has also tested a plan called Premium Duo that offers two subscriptions for €12.49 ($13.91) a month.

Higher prices might help placate music companies, which have complained about falling revenue per user. They’ve previously questioned why Spotify doesn’t use its market-leading position to raise rates. The average price paid by Spotify subscribers has declined for a few years because of discounts to draw in new customers and growing use of family plans.

With 108 million paying customers, Spotify is the largest paid music service in the world, and it’s unlikely to surrender that crown any time soon. The company says it’s growing faster than its closest competitor, Apple Music, which also charges $15 a month for a family plan and had about 60 million customers at midyear.

But Spotify still loses money. The company has been reluctant to increase prices because it’s still in a growth stage, relying on discounts to keep customers and attract new ones as people become accustomed to streaming on-demand. While the company has grown quickly, only a minority of music listeners around the world have adopted the technology, and Spotify executives have said the addressable market is at least 1 billion people.

North America, Latin America and Europe account for more than 80% of Spotify’s customer base. The company is making a big push in Asia, where it has sold its service at low prices to compete with local players and free alternatives such as YouTube.

Spotify is also under pressure from competition. It offers more or less the same product as Apple Inc., YouTube, and Amazon.com Inc. — millions of songs available on-demand, as well as playlists and podcasts.

But Apple, YouTube, and Amazon don’t need to make money on music. They can use their music services to profitably sell other products, whether it’s iPhones, advertising, or toilet paper. Spotify doesn’t have that luxury. — Bloomberg

LRMC begins civil works on Cavite extension

THE operator of the Light Rail Transit Line 1 (LRT-1) is set to begin the civil works on the railway’s extension to Cavite next month.

In a statement yesterday, Light Rail Manila Corp. (LRMC) said it had completed the geotechnical investigation or soil testing on the LRT-1 extension last month, and may proceed with the piling works by Sept. 1.

“Civil works along the alignment from the Dr. Santos Avenue Station towards Baclaran Station, both in Parañaque City, are expected to start by Sept. 1, 2019,” LRMC Cavite Extension Project Execution Manager Reynaldo Pangilinan said in the statement.

He noted the right-of-way for the affected segment had already been acquired with the help of the Department of Transportation and Light Rail Transit Authority.

The P64.9-billion LRT-1 Cavite Extension project involves the construction of an 11.7-kilometer train line from Baclaran to Bacoor through eight new stations: Redemptorist, NAIA Avenue, Asia World, Ninoy Aquino, Dr. Santos, Las Piñas, Zapote and Niog.

The project is scheduled to partially open by the fourth quarter of 2021, with full operability seen in 2022.

LRMC is the consortium composed of Ayala Corp., Metro Pacific Light Rail Corp. (a unit of Metro Pacific Investments Corp.) and Macquarie Infrastructure Holdings (Philippines) Pte. Ltd.

MPIC is one of three Philippine subsidiaries of Hong Kong’s First Pacific Co. Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., maintains an interest in BusinessWorld through the Philippine Star Group. — Denise A. Valdez

PHirst Park Homes generates P6 billion in sales

PHIRST PARK Homes, Inc. (PPHI) has recorded P6 billion in sales from its first three affordable housing projects in Cavite, Batangas, and Laguna.

In a statement, the affordable housing brand of Century Properties Group, Inc. said it sold 3,706 units out of the 4,187 units it launched since May 2017. The residential projects are located in Tanza, Cavite; Lipa, Batangas; and San Pablo, Laguna.

“The strategic location, quality, and the affordability of our projects are the primary reasons why we are receiving an overwhelming demand to purchase PHirst Park Homes. We’ve accelerated the pace of our developments especially in the Tanza project, the third and final phase of which is now being offered ahead of schedule,” Ricky M. Celis, president of PPHI, said in a statement.

The first two phases of PHirst Park Homes Tanza is sold out, while pre-selling for the third phase has started. Land development for phase one is already 95% complete, while second phase is 87% complete as of end of July this year.

The first phase of PHirst Park Homes Lipa is now 92% sold, while first phase of PHirst Park Homes San Pablo is 74% sold.

“The sales demand mostly came from the OFWs, new families, and people who wanted to have a home because they can already afford it,” Mr. Celis said.

PHirst Park Homes is a joint venture between CPG and Mitsubishi Corp.

Safe-haven units under pressure on hopes of central bank easing

TOKYO — Safe-haven currencies such as the yen and Swiss franc were under pressure on Monday as expectations that policy makers would unleash new stimulus eased immediate concerns about a slowing global economy.

Such hopes found support from the Chinese central bank’s interest rate reforms over the weekend that are expected to lower corporate borrowing costs, and reports of new fiscal stimulus in Germany.

However, investor optimism is likely to be capped ahead of a US decision later on Monday on whether to continue to allow China’s Huawei Technologies to buy supplies from American companies.

“Huawei is a big test to see whether the current risk-on mood will continue in the currency market,” said Takuya Kanda, general manager of the research department at Gaitame.com Research Institute.

“There’s a sense of calm right now because the stimulus story is supporting the dollar against safe-havens, but I’m not sure how long this calm will last,” he added.

The dollar index, which measures the greenback against six major currencies, was marginally higher in Asia at 98.201, close to a two-week high of 98.339 reached on Friday.

Against the yen, the dollar was little changed at 106.37 yen, near a one-week high of 106.98 yen.

The yen and the Swiss franc, both of which tend to be bought as a safe-haven during times of economic uncertainty, fell slightly on Monday versus other currencies.

Risk sentiment could improve further if Washington offers some concessions to Huawei, which could make a resolution of the US-China trade war more likely.

The US government blacklisted Huawei Technologies in May, accusing the world’s largest telecom equipment maker of espionage and intellectual property theft. The allegations, which Huawei denies, were a serious escalation in the trade war.

The US Commerce Department is expected to extend a reprieve given to Huawei that permits the Chinese firm to buy supplies from US firms so that it can service existing customers, two sources familiar with the situation told Reuters on Friday.

However, President Donald Trump said on Sunday he did not want the United States to do business with Huawei for national security reasons, casting doubt over the decision.

While a rejection for Huawei could easily fuel another bout of risk aversion, risk-sensitive currencies appeared to have found some support for now.

The dollar edged higher to 0.9795 Swiss franc, approaching the highest in almost two weeks.

The euro also rose 0.2% to 1.0865 Swiss francs.

The Australian dollar drifted higher to 72.12 yen, on course for its third day of gains.

Gold, another safe-haven asset, fell 0.3% in the spot market to $1,508.40 per ounce.

The People’s Bank of China unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by the trade war with the United States.

In the onshore market, the yuan traded at 7.0447, little changed on the day. In the offshore market, the dollar rose 0.2% to 7.0577 yuan.

The details of Chinese stimulus came after German media reported that the German government may be open to running a fiscal deficit to boost growth.

Hopes for stimulus to help Germany’s economy, which is on the brink of recession, also rose after Finance Minister Olaf Scholz suggested the government is ready to spend.

Scholz said on Sunday the global financial crisis in 2008 and 2009 cost Germany roughly €50 billion ($55.45 billion), but Germany has the fiscal strength to spend a similar amount to counter any future economic crisis.

China and Germany are two major global exporters that play a crucial role in world trade, so any steps to bolster these two economies is a positive for the global economic outlook. — Reuters

‘You can still sense the love’: Baby boomers revel at Woodstock 50 years on

BETHEL, N.Y. — Baby boomers dressed in tie-dye, rolling wheelchairs and chasing a memory of peace and love flocked to Bethel, New York, for the weekend to mark the 50th anniversary of Woodstock, the music festival that defined 1960s counterculture.

Thousands of flower-crowned visitors made the journey to the Bethel Woods Center for the Arts, which now owns the original festival site, to hear some of the same musicians including Arlo Guthrie, attend a planned Saturday concert by Santana, and feel the spirit of community that the 1969 festival produced.

“Even though I’m seeing the site 50 years later, I feel like I’m there at the first concert,” said Peter Hadley, 63, who arrived on Thursday. “Everybody greets us, talks to us. It’s the love that started back in ’69 and it’s present here, now.”

Woodstock, which was held at Max Yasgur’s dairy farm in upstate New York from Aug. 15-18 and featured about 30 acts, became a logistical nightmare when more than 400,000 people showed up, causing traffic gridlock for miles.

This weekend, in stark contrast to 1969, attendees found metal detectors, indoor plumbing, and abundant food vendors at the Bethel Woods Center, which is hosting several concerts to mark the anniversary.

But those making the return trip said they had been unfazed by the chaos and unsanitary conditions in 1969, and instead remembered the kindness of locals, law enforcement, and other concert-goers who offered food and medical aid.

“Everything that could go wrong went wrong. But everything went right,” said Duke Devlin, 77, who hitchhiked to Woodstock from Texas and has lived near the festival venue ever since. “We were bombarded with bliss.”

Arlene Seymour, 69, arrived for the weekend wearing the same tie-dye shirt she bought on her way to the 1969 concert. She fondly recalled sharing food with people she had just met and sleeping in the trunk of a stranger’s car to avoid the rain.

“It just wouldn’t happen like that today,” she said. “Because of the environment in the world, people would be worried to have it so loose.”

The anniversary attracted not just baby boomers. Younger people, dressed in throwback bell-bottoms and fringes, came to experience the atmosphere they missed in 1969.

Down the road from Bethel, a more informal reunion with music was taking place to mark the weekend in a style reminiscent of 50 years ago.

“You can still sense the love,” said Michelle Lecuyer, a 53-year-old sales director from New Hampshire, who described standing on the field where rock legends like Jimi Hendrix, Joe Cocker and Janis Joplin performed as experiencing “a slice of heaven.”

Previous Woodstock anniversaries have not fostered such harmony. People threw mud at performers at a rain-drenched Woodstock ’94 in Saugerties, New York. A fire broke out at the 30th reunion in Rome, New York, and the event devolved into violence.

Last month, original Woodstock producer Michael Lang’s plans for a 50th anniversary festival fell through when the organizers failed to secure a venue and headliners including Jay-Z and Miley Cyrus dropped out.

But the gray-haired crowds gathered in Bethel were determined to have peace. Ignoring the rain on Thursday and Friday and the omens of Woodstock reunions past, they held hands in a circle around a peace sign on the lawn, smoked blunts while singing along to Arlo Guthrie, and swayed to the rhythm of their generation. — Reuters

Plastics manufacturer expands to Mindanao

DAVAO CITY — Manila-based plastics maker Manly Plastics, Inc. will soon occupy a 1.1-hectare area at the Anflo Industrial Estate (AIE) in Panabo City.

“We are bullish that this will attract more investments here in the (Davao) region and generate more revenues and employment for the locals,” Ricardo F. Lagdameo, vice- president of Damosa Land, Inc., said in a statement. AIE is owned by Damosa Land.

The plastics company is the 14th locator in the economic zone.

Founded by Co Bun Ting and his wife Co Po Ty, Manly Plastics claims to be “the largest provider of end-to-end plastic product solutions in the Philippines — capable of everything from mold engineering to fabrication, mass production to decoration.”

Manly Plastics’ AIE facility is intended to cover the Mindanao market. Among its products are those used in automobiles, appliances, beverages, electronics, furniture, and material handling.

Other locators that inked deals with AIE this year are Japanese company Packwell, Inc. and Chinese firm Zhenzhi Corp.

Other companies operating at the 63-hectare agro-industrial ecozone are Del Monte Fresh Produce Philippines, First Panabo Tropical Foods Corp., Phildutch Polymer Inc., Davao Packaging Corp., CAMECO Realty Development, PMR Pallet Ltd. Co., Fermon Corp., Southern Harvest, and Lane Holdings, Inc. — Carmelito Q. Francisco

The Enclave Alabang launches Phase 2

UPSCALE developer Filigree is launching the second phase of exclusive residential village The Enclave Alabang.

The Enclave Alabang, 13-hectare community, is located in a secluded section of Daang Hari Road. The first phase featured 169 lots on 10 hectares. For the second phase, Filigree is offering 49 lots averaging 350-500 square meters.

“The success of The Enclave Alabang is a testament to the luxury market’s appreciation of our hard work and commitment in delivering only the finest, masterplanned developments. With the second and last phase of The Enclave Alabang nearly sold out, Filigree adds another milestone to its legacy of building coveted premium properties,” Filigree head Catherine Ilagan said in a statement.

The Enclave Alabang tapped H1 Architecture as lead designer and masterplanner, AECOM Singapore for landscaping and Budji Layug and Royal Pineda for clubhouse interiors.

Nearly 40 percent of the development has been set aside for greenery. The Enclave Alabang has a central park, children’s playground, and 1,500-sq.m. clubhouse with a pool gym and function rooms.

China’s new lending benchmark to be based on medium-term rates

THE PEOPLE’S Bank of China announced a rate overhaul over the weekend which will help steer borrowing costs lower. — REUTERS

BEIJING/SHANGHAI — China’s announcement of key interest rate reforms over the weekend fueled expectations of an imminent reduction in corporate borrowing costs in the struggling economy, boosting share prices on Monday.

The People’s Bank of China (PBoC) unveiled the long-awaited reforms on Saturday to help steer borrowing costs lower and support businesses hurt by weak demand at home and a year-long trade war with the United States.

While the rate overhaul has been in the works for some time, the announcement came days after data showed the economy stumbled more sharply than expected in July, raising questions over whether more rapid and forceful stimulus may be needed.

Analysts believe the revamped loan prime rate (LPR), which will be debut on Tuesday, will be lower than the current level of 4.31%, but are divided over how much funding costs will come down and how quickly.

While China has pushed plenty of liquidity into the financial system over the past year to shore up growth and guided short-term rates down, loan demand and fresh investment has been relatively subdued amid weakening business confidence and banks’ worries of more bad loans.

Under the new mechanism, bank lending rates will be linked to the loan prime rate, which will be linked to the PBoC’s medium-term lending facility (MLF) interest rate, and that should establish a relatively smooth policy transmission mechanism, said Ma Jun, a policy adviser to the central bank.

“In the future, if the policy interest rate falls, the loan interest rate will also fall, which will help to reduce the financing cost of enterprises,” he said in remarks published on the website of state radio on Monday.

China and Hong Kong stocks rose on expectations the move will ease corporate financing pressures, but some analysts cautioned the reform may not be equivalent to cuts in bank’s actual lending rates, as banks could still charge higher rates on riskier loans to smaller, private firms.

Still, Chinese banking shares fell amid worries of lower profitability for lenders. Reactions in the bond and the yuan markets were muted

“The new system itself doesn’t guarantee the actual lending rate will be lower,” Goldman Sachs said in a report.

“But given the current situation with weak activity growth, heightened trade war risks and a strong desire by the senior leadership to lower rates, we do expect actual lending rates to go down.”

Australia and New Zealand Banking Group estimates that the reform is equivalent to making a 45 basis point (bps) loan rate cut. Societe Generale believes the reform could lead to a more modest 10-25 bps cut in the new benchmark lending rate.

Under the changes, banks must set rates on new loans using the new LPR as the benchmark for floating lending rates, rather than the PBoC’s benchmark bank lending rate.

The market’s focus will be on where the new LPR is set on Tuesday. Rates will be published on a monthly basis.

Ming Ming, head of fixed income research at CITIC Securities in Beijing, said he expects the first new rate will be set lower to narrow the yield gap between LPR and interest rate on the MLF, which is now 3.3%. That gap is currently 101 bps.

Some analysts believe the central bank could cut the one-year interest rate on the MLF in order to guide borrowing costs lower. A batch of one-year MLFs with a value of 149 billion yuan ($21.15 billion) is set to expire next Monday.

“We see chances for China to lower its MLF rate in the coming months,” said Tommy Xie, economist at OCBC Bank.

“However, we don’t see the urgency for China to cut its MLF rate in August as China may want to take a wait-and-see approach to see how markets react and digest the latest liberalization.

The PBoC launched the LPR in 2013 to reflect rates that banks charge their best clients. But the LPR has been reacting little to market demand and supply, with the one-year rate hovering just under the benchmark one-year lending rate of 4.35%.

Ma said the LPR reform will help it better reflect changes in market rates and help lower corporate funding costs.

Chinese banks’ new LPR quotations will be based on open market operations, the PBoC said over the weekend. The national interbank funding center will publish the reference rate from Tuesday and on the 20th day of each month thereafter.

Banks will set rates on new loans by adding a spread to the new LPR reference rate, the central bank said.

But existing loans will still follow the original contracts that were signed in line with the benchmark lending rate. China’s outstanding local-currency loans were at a staggering 147 trillion yuan ($20.87 trillion) at the end of July.

A massive 28 trillion yuan in long-term mortgage loans are exempt from the new scheme, analysts at Nomura note.

OCBC’s Xie said the move is a “half step” toward interest rate liberalization, and the link to the medium-term lending rate may only be temporary.

“The current liberalization focuses only on the lending rate while the deposit rate was left untouched… In the longer run, China may also need to loosen the setting of deposit rate.” — Reuters

Tiu’s PHL Infradev creates China subsidiary

PHILIPPINE Infradev Holdings, Inc. has successfully incorporated a wholly owned subsidiary in Jiangsu, China which will handle procurement processes for the company.

The Antonio L. Tiu-led firm told the stock exchange Monday that Jiangsu Rizal Infradev Co., Ltd. is now registered in the Jiangsu Province with a registered capital of $10 million.

“(The company) shall be the corporate vehicle that will be used by (Philippine Infradev) to do the procurement, financing, financial leasing, commercial trading and guarantee, among others,” it said.

Philippine Infradev first announced the plan to incorporate a China unit in June.

Earlier this year, it tapped several Chinese firms for its $3.5-billion Makati City Subway Project. These firms are Greenland Holdings Group; Jiangsu Provincial Construction Group Co. Ltd., Holdings Ltd. and China Harbour Engineering Co. Ltd.

Construction of the Makati City Subway Project, which Philippine Infradev is developing with the local government of Makati, is scheduled to begin by December.

The 10-kilometer intracity railway system will have 10 stations. Philippine Infradev will operate the subway for 50 years. Its completion is expected in 2025, by which time the train will be able to accommodate 700,000 passengers every day. — Denise A. Valdez

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