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Inflation eases in Q2, seen slowing further

THE BANGKO SENTRAL ng Pilipinas (BSP) said inflation settled at the midpoint of its target band in the second quarter, driven by improved domestic food supply conditions.

Inflation is also seen easing further in the coming months to fall within the government’s target for the year, with the effect of the mild El Niño phenomenon not expected to be a huge risk to prices.

Headline inflation eased to three percent in the April-June period, coming from the 3.8% recorded in the previous quarter and settling within the 2-4% target band. This brought domestic inflation to settle at 3.4% in the first half of the year.

In a press conference on Friday, BSP Deputy Governor Francisco G. Dakila, Jr. said lower price increases in the second quarter was driven by reduced food inflation brought by improved domestic food supply conditions.

“In particular, rice prices declined with the ongoing harvest season and the continued arrival of imports,” Mr. Dakila said.

President Rodrigo R. Duterte signed on Feb. 14 the rice tariffication law, which seeks to liberalize importation of the staple by replacing quantitative restrictions on rice imports with levies: 5% for rice coming from within the Association of Southeast Asian Nations (ASEAN); 40% for imports within the 350,000 metric-ton minimum access volume (MAV), regardless of country; and 180% for above-MAV imports from non-ASEAN countries.

Apart from rice, the BSP said other large-weighted food items such as meat, fish as well as milk, cheese and eggs also contributed to the slowdown of food inflation.

“Lower food prices in turn offset the impact of higher fuel prices,” Mr. Dakila added.

Energy prices climbed in the second quarter amid tighter supply concerns, with Dubai crude oil prices went up 6.1% on average in the April-June period.

“This was brought about by several developments including the strong compliance of the Organization of the Petroleum Exporting Countries (OPEC) and selected non-OPEC countries to their agreement to reduce supply,” the BSP said.

Core inflation — which strips volatile food and energy items in the consumer basket — slowed to 3.4% in the second quarter, coming from the 3.9% in the previous quarter.

INFLATION TO CONTINUE EASING
Looking ahead, the BSP expects inflation to “continue to ease,” expecting it to settle within its 2-4% target band until 2020.

“Inflation is projected to decelerate close to the low end of the target range in Q3 2019 before settling close to the midpoint of the target over the medium term,” the central bank said.

The BSP added that risks to the inflation outlook are “broadly balanced” for 2019 and 2020, as higher electricity rates, transport fare adjustments, proposed reforms in the excise taxes on alcoholic beverages and cigarettes and prolonged El Niño episode stand as “main upside risks.”

On the other hand, downside risks include slower global economic growth due to protectionist policies between US and China as well as geopolitical tensions.

Dennis D. Lapid, BSP Monetary Policy Sub-Sector officer-in-charge, said the central bank does not see the “mild” El Niño episode as a “huge” risk.

“It (El Niño) might be a little better now because we’ve liberalized the trade regime for rice. So you’ll now see response from the private sector kung magka-shortage ng (if there will be a shortage in) domestic supply,” Mr. Lapid told reporters on Friday.

He added that the dry spell can last until the end of the year, prompting the BSP to look at its effect on inflation until next year.

“So you have much drier period in the first, early part of 2020 and heading into the summer months. So that could also impact on 2020,” Mr. Lapid said.

During its June 20 monetary policy meeting, the central bank revised its inflation forecast for this year to 2.7% from the 2.9% expected in May and to 3% from 3.1% for 2020, on the back of likely lower global oil prices and the peso’s appreciation. — Karl Angelo N. Vidal

CoA notes irregularities in PAGCOR school building project

THE Commission on Audit (CoA) has flagged the Philippine Amusement and Gaming Corporation (PAGCOR) for the poor implementation of a P12-billion school building project dubbed as “Matuwid Na Daan Sa Silid Aralan.”

According to the annual audit report, only 6,471 classrooms were completed and the remaining 457 classrooms were still either under construction or at procurement and planning stage.

“Verification disclosed that there were 457 classrooms with total project cost of P714.496 million, or 6.6 percent of the total 6,928 classrooms set to be finished as of December 31, 2017 that are still incomplete based on the Monitoring Report dated January 31, 2019,” said COA.

“Likewise, there was no written agreement for extension of the construction of these classrooms between PAGCOR and the implementing agencies,” it added.

State auditors also noted that there were anomalies in the construction of 211 classrooms with a project cost of P393.450 million.

The report showed some of these classrooms were not yet completed but reported as 100% complete in status report. There were also non-existent school buildings included in the record and cases where construction has not yet started but public bidding was already conducted prior months ago and where construction was already abandoned.

The auditing agency said PAGCOR commented that it will “conduct necessary investigation to determine whether the implementing agencies were remiss or negligent in the implementation of the project and initiate sanctions, if warranted.”

CoA added that P1.189 billion funds released to the Department of Public Works and Highways (DPWH) and the Department of Education (DepEd) remained unliquidated as of Dec. 31.

In the report, state auditors said DepEd has yet to respond to the demand for the return for the remaining unused funds of P441 million. Meanwhile, the DPWH already signified its intention to return the unused P747.669 million in funds.

However, CoA said the DPWH requested from PAGCOR “the approval of additional requirements needed to complete those classrooms that are still under/on-going construction.” — V.A.C. Ferreras

Duty Free to open Go Lokal’s Marahuyo store in Pasay

DUTY FREE Philippines Corp. (DFP) is set to open the first local high-end store of Go Lokal called Marahuyo before the end of the year in the SM Mall of Asia Complex in Pasay City.

In a statement on Friday, the state-led agency said Marahuyo will be a 50-square meter (sq.m.) concept store that will feature local high-end brands. This will be located within the Duty Free Luxe in the complex and cater mostly to foreign and Filipino travelers abd overseas Filipino workers.

The initial batch of suppliers went through product testing by the Department of Trade and Industry to make sure all products meet its quality standards, but more brands can still be added.

The brands include Aranaz (handbags), Earl Carlo Gariando Enterprises (clutch bags made of bass), Quiddity (handcrafted leather bags), Helena Alegre Jewelry (scriptural and fabricated Jewelry), and Joanique (fashion accessories), Maria Angelica Rare Finds (antique accessories), Arnel Papa (fashion jewelry), Mele + Marie (handbags), Adante Leyesa (fashion accessories), Joyce Makitalo (fashion jewelry), and Ann Ong (fashion jewelry).

“The rich cultural diversity of the Philippines is expressed in these crafts which differentiate us other destinations elsewhere in the world. When customers buy our local brands, we are not just exporting a product, but more importantly, we are exporting our culture,” DFP Chief Operating Officer Vicente Pelagio A. Angala said in a statement.

“Our challenge is for us getting our products in the market for wider consumer, that is why we are thankful to Duty Free Philippines for giving us a venue so we can help and provide more jobs to local communities,” one of the suppliers said in a statement. — VMPG

Cebu Pacific interested in Cebu-Mati flights

MATI CITY, DAVAO ORIENTAL — Budget airline Cebu Pacific is interested in launching flights between Cebu and Mati City once the latter’s airport opens for commercial operations, according to Mati Mayor Michelle N. Rabat.

“Cebu Pacific ang nakakita ng (has seen the) potential ng ating (of our) Mati as a tourist destination,” she told the media on Thursday, noting that the carrier has expressed intent to serve the Cebu-Mati route.

Negotiations over land ownership issues on the airport’s site has started, said the mayor, whose clan is among those involved in the talks.

“We have yet to settle the issue of the land where the airport is built. I don’t want it to sound biased but it is owned by the Rabat-Rocamora, our families,” said Ms. Rabat, adding that “some documents” have gone missing.

The airport was built in the early 1980s under then Davao Oriental governor Francisco G. Rabat, the incumbent mayor’s father.

“We will try to settle that, to pacify the families (and tell them that there is a) commitment that eventually bibilhin yan (it will be paid for), but for now, allow us to develop so we can open it,” Ms. Rabat said.

She further explained that the national government, specifically the Department of Transportation, could not step in for rehabilitation if they do not have the pertinent documents on the project.

One of the main improvement works needed is an expansion of the existing 1,625-meter runway to accommodate bigger aircraft.

A P200-million fund from the national budget, through the Department of Tourism, has already been allocated for the runway.

Ms. Rabat said they are aiming to reach a settlement within the year, with support from the Davao Oriental provincial government.

“Hopefully we will be able to hit the target,at nakatutok din ang gobernador dito sa project na ito (the governor is also focusing on this project),” she said.

Gov. Nelson L. Dayanghirang earlier said the airport’s opening is one of his priorities to boost, not just tourism but the overall investment climate in the province.

“Both the provincial and the (Mati) city government believe that the reopening of the airport will bring more opportunities for the growth,” said Mr. Dayanghirang in an e-mail sent to BusinessWorld earlier this month.

Davao Oriental’s popular tourist destinations include the Dahican Beach in Mati, the UNESCO World Heritage Site Mt. Hamiguitan, and Aliwagwag Falls, among others.

Mr. Dayanghirang said the provincial government is also working on the construction of an inland resort as well as an 800-person capacity convention center. — Maya M. Padillo and Carmelito Q. Francisco

BHI in talks with foreign property firm for Cavite project

By Arra B. Francia, Senior Reporter

BOULEVARD Holdings, Inc. (BHI) is in talks with a foreign real estate firm for the development of a piece of land next to the soon-to-be-opened Zamora Ocean Course in Cavite.

In a message to shareholders disclosed on Friday, BHI Chairman and Chief Executive Officer Jose Marcel E. Panlilio said they are entertaining a counter offer from a Japanese-Hong Kong developer to acquire or participate in the projetc’s development.

“The foreign entity is one of the few successful Japanese-Hong Kong developers to venture abroad in most of the high-end Asian capitals, putting up high rises, shopping malls, super premium residential villas and office towers. Its affiliate is also part of the Hang Seng Index,” Mr. Panlilio said.

The company said it has already conducted due diligence for the past two months, with most conditions favorable to both parties. It will finalize more details in the company’s upcoming board meeting on July 29.

Once completed, the company said the project will cater to middle-income Japanese retirees and airline crew.

“We can say that BHI might finally benefit from the Duterte bonanza with more foreign investors in town and the Sangley Airport soon to be developed,” Mr. Panlilio said.

On the other hand, the company also said they are looking to launch their mixed use township project with privately held firm Revolution Precrafted Properties Philippines, Inc. (RPPPI) by August.

Mr. Panlilio noted that their partner had to move the launch date due to revisions on the density for project, which includes a 500 to 700-unit condotel, residential, and villas on one of the firm’s beach properties.

The project is seen to fetch P1.9 billion in sales, 15% of which will go to BHI over a four to five-year period.

“All they need now is to come to terms with the best contractor to start this,” Mr. Panlilio said, adding that they will disclose more details by mid-August.

BHI posted a net income attributable to the parent of P2.51 million in its quarter ending Feb. 28, following gross revenues of P41.3 million, three percent higher year on year.

Shares in BHI jumped 3.12% or 0.2 centavos to close at 6.6 centavos apiece on Friday.

Lorenzo Tan assumes top post at House of Investments

LORENZO V. TAN

HOUSE of Investments Inc. (HI) has appointed banker Lorenzo V. Tan as its president and chief executive officer.

In a disclosure to the stock exchange, the listed holding company of the Yuchengco Group said Mr. Tan officially took office on Friday.

“He now carries on the task of continuing to steer House of Investments, Inc., honoring the legacy of the company’s outgoing president Mr. Medel Nera,” the company said in a statement.

Mr. Tan was previously the managing director of Primeiro Partners, an independent investment bank. He was also formerly the president of the Bankers Association of the Philippines (BAP) and chairman of the Asian Bankers Association (ABA).

He was also president and chief executive officer of Yuchengco-led Rizal Commercial Banking Corp. (RCBC), Sunlife Financial Phils., Philippine National Bank (PNB), and United Coconut Planters Bank (UCPB).

He quit RCBC in May 2016, despite being cleared of any wrongdoing in connection with the $81 million money laundering scandal involving funds stolen from the Bangladesh central bank.

Mr. Tan began his career in Citibank New York, Los Angeles and Singapore.

HI’s businesses include construction (EEI Corp.), education (iPeople Inc.), renewable energy (Petroenergy Resources Corp.), property (Manila Memorial Park Cemetery, Inc. and RCBC Realty), pharmaceuticals (HI-EISAI Pharmaceutical Inc.) and automobile (Honda and Isuzu dealerships).

Shares in HI went up 0.15% or 0.01 centavos to P6.50 each on Friday. — Vincent Mariel P. Galang

Arthaland creates new subsidiary to handle new project

NICHE property developer Arthaland Corp. has set up a new subsidiary in preparation for a new project in the future.

In a disclosure to the stock exchange Friday, the listed company said it has incorporated Bhavana Properties, Inc. It has also subscribed to 24.999 million common shares in Bhavana, priced at P1 each.

“The wholly-owned subsidiary will be the vehicle used to acquire another property for an upcoming project the details of which will be disclosed as and when appropriate,” the company said.

The company raised P1 billion from the issuance of preferred shares last month, which it plans to use for land acquisitions and for ramping up operations in the future.

Arthaland earlier said it is in the final stages of acquiring two properties in Manila and Cebu, as part of efforts to grow its portfolio by five times in 2022. It targets to have 550,000 square meters of developed land under its network by then.

Arthaland recently started construction for its 8.1-hectare mixed use development in Binan, Laguna, its first township project. It will house 108 villas scheduled for completion in 2021.

The company remains on the lookout for more land acquisitions in the CALABARZON area and other key cities in the country in the future, in addition to the 50 hectares it currently has.

Arthaland’s net income attributable to the parent surged 185% to P201.8 million in the first quarter of 2019, while gross revenues also jumped 337% to P466.35 million.

Shares in Arthaland dropped 1.87% or two centavos to close at P1.05 each at the stock exchange on Friday. — Arra B. Francia

Lufthansa Technik PHL plans $40-M expansion

LUFTHANSA Technik Philippines (LTP) is planning to invest $40 million to expand its facility in Villamor Airbase in Pasay City, according to the Department of Trade and Industry (DTI).

In a statement on Friday, Trade Secretary Ramon Lopez said the department supports the expansion plans of the aircraft maintenance, repair and overhaul (MRO) company, saying this will help boost the Philippines’ efforts to become an aerospace and MRO hub in the region.

LTP is planning a 9,000-square meter (sq.m.) expansion in Villamor Airbase, where it currently operates on a 229,000-sq.m. lot and employs 3,200 people. The expansion project will create 300 more jobs. It is expected to be completed 13 months after the contract is awarded.

“The Philippines is positioning itself as the hub for aerospace manufacturing and aftermarket services in the Asia Pacific Region. We have the young, educated, and highly-trainable workforce that is a boon to investors. If we achieve this goal, we can increase our high-value exports and provide decent jobs to more Filipinos,” said Mr. Lopez, who met with LTP officials on July 9.

Elmar Lutter, president and chief executive officer of LTP, said the global MRO market is projected to grow by 4% to 5% annually, with one third coming from Asia Pacific. However, he warned the rising demand for MRO skilled workers may cause a labor shortage in the Philippines, as Filipinos are known as skilled aircraft mechanics.

LTP is a joint venture between MacroAsia Corp. and Germany-based Lufthansa Technik AG, and offers a wide range of MRO services. Aside from its site in Pasay, it also has operations in Cebu, Davao, Pampanga, Palawan, and Aklan. — Vincent Mariel P. Galang

Banks keep lending standards steady in Q2

MOST BANKS kept their lending criteria little changed in the second quarter, results of a central bank survey showed.

Lenders broadly maintained their credit standards for loans to both enterprises and households during the April-June period, according to the results of the Bangko Sentral ng Pilipinas’ (BSP) latest Senior Bank Loan Officers’ Survey.

This marks the 41st straight quarter that borrowing standards were kept “broadly unchanged.”

The central bank uses the quarterly survey to understand the lending decisions made by banks and monitor bank credit. The BSP said 45 of 66 banks — 42 universal and commercial banks and 24 thrift lenders — responded to the poll.

Most banks, or 82.1% of those surveyed, said they used the same standards for granting loans to businesses, higher than the 72.9% that said so in the first quarter of the year, based on the modal approach.

Under the diffusion index (DI) approach, more banks tightened their standards in assessing loans for corporate borrowers across all firm sizes, namely top corporations, large middle-market enterprises, small and medium firms and micro-enterprises.

A positive DI for credit standards means that more banks have tightened lending rules compared with those that eased. A negative DI indicates the opposite.

Meanwhile, 88% of the banks surveyed reported they used the same standards for deciding on personal loans in the second quarter, up from 73.3% in the previous period.

However, using the DI approach, banks said they were stricter in lending to individuals, particularly for auto and personal or salary loans.

The BSP attributed the overall net tightening for household credit to “stricter collateral requirements and loan covenants, shortened loan maturities and increased use of interest rate floors.”

Overall, most banks continued to see stable demand from both households and businesses, the survey results showed, a net increase in business and retail loan demand was recorded using the DI approach.

“The overall net increase in loan demand from firms was attributed by banks largely to their customers’ higher working capital requirements,” the BSP said. “Meanwhile, respondent banks attributed the overall net increase in household loan demand to higher household consumption, lower interest rates and banks’ more attractive financing terms.”

The central bank added that for the next quarter, majority of respondent banks anticipated maintaining their overall credit standards for business and household loans, based on the modal approach, while more respondent banks expect overall credit standard for business and household loans to tighten over the next three months, according to DI approach.

About 86.7% of banks also said that they kept borrowing requirements steady for commercial real estate loans during the said quarter, higher than the 82.6% booked in the January-March period of this year. DI-based results meanwhile suggested tighter credit standards for commercial real estate loans attributed largely to “favorable economic outlook and a perceived deterioration in the profile of borrowers.”.

“For housing loans extended to households, results based on the modal approach pointed to unchanged credit standards while DI-based results indicated a net tightening of credit standards for housing loans,” the BSP added. — Karl Angelo N. Vidal

Peso weakens on dovish Fed comments

THE PESO weakened against the dollar on Friday as the market positioned following dovish pronouncements from a US Federal Reserve official and ahead of the release of US data on consumer confidence.

The local unit ended the week at P51.04 versus the greenback, down seven centavos from its P50.97-per-dollar finish on Thursday.

The peso opened the session at P51 against the US currency, slipping to as low as P51.06. Meanwhile, its best showing stood at P50.92 versus the dollar.

Trading volume thinned to $1.095 billion from the $1.22 billion that switched hands the previous session.

A trader said the peso declined against the dollar on Friday, even as it strengthened in the morning session following greenback’s weakness overnight.

“The peso reached P50.92 intraday due to the dollar weakness following the pronouncement of Fed Williams,” the trader said in a phone interview Friday.

New York Fed President John Williams said in a speech on Thursday that the US central bank needs to take “preventative measures” while interest rates are down and economic growth is easing than “to wait for disaster to unfold.”

His comment strengthens the case for a half-a-percentage-point cut in interest rates during Fed’s policy meeting later this month.

“Due to his comments, the dollar was mostly weaker against all currencies. However, the market may have opted to reduce short position. The market was just being cautious,” the first trader said.

Another trader added that the peso declined due to “positioning ahead of the release of US consumer confidence report [Friday night].” — Karl Angelo N. Vidal

Local stocks extend gains ahead of SONA

By Arra B. Francia, Senior Reporter

LOCAL stocks extended gains on Friday ahead of the president’s State of the Nation Address (SONA) next week, as the local central bank noted lower inflation expectations until 2020.

The 30-member Philippine Stock Exchange index (PSEi) rose 015% or 12.02 points to close at 8,270.07. The broader all shares index likewise added 0.03% or 1.73 points to 5,010.71.

“2019 lower inflation and stronger peso forecast from our economic managers and rate cut expectations from the Fed lifted the local market today by 12.02 points to 8,270.07,” Philstocks Financial, Inc. said in a market note.

The Bangko Sentral ng Pilipinas (BSP) released on Friday its quarterly inflation report for the second quarter of 2019, where it noted that inflation had fallen to 3% from 3.8% in the first quarter.

“Analysts expect inflation to remain manageable and within the government’s target range, with risks to the inflation outlook likely to be broadly balanced,” according to the BSP’s report, based on its survey of inflation expectations from private sector economists as of June 2019.

Overseas, the New York Federal Reserve President John Williams hinted at an interest rate cut in the future, boosting investor sentiment in most international markets.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan also attributed the market’s uptick to the Federal Reserve’s comments.

“The pre-SONA mood, dovish Fed, gold spike and developments on the geopolitical front drove investors to slowly accumulate the market to end the week,” Mr. Limlingan said in a mobile phone message.

In Wall Street, the Dow Jones Industrial Average eked out gains of 0.01% or 3.12 points to 27,222.97. The S&P 500 index firmed up 0.36% or 10.69 points to 2,995.11, while the Nasdaq Composite index climbed 0.27% or 22.04 points to 8,207.24.

Asian markets rallied, with Japan’s Nikkei 225 surging 2% or 420.75 points to 21,466.99. The Hang Seng index jumped 1.15% or 325.98 points to 28,787.64, while the Shanghai Composite went up 0.79% or 23.02 points to 2,924.20.

Locally, four sectoral indices ended in positive territory, led by mining and oil which jumped 2.21% or 175.55 points to 8,126.27. Financials climbed 0.34% or 6.26 points to 1,877.28; property went up 0.25% or 11.21 points to 4,423.57, while holding firms increased 0.11% or 8.67 points to 7,942.92.

Meanwhile, industrial dropped 0.45% or 52.28 points to 11,704.70, and services slipped 0.02% or 0.41 points to 1,681.71.

Turnover improved to P6.74 billion after some 1.46 billion issues switched hands, higher than Thursday’s P5.60 billion.

Decliners outpaced advancers, 102 to 94, while 53 names were unchanged.

Net foreign buying inched up to P759.81 million, versus the previous session’s P540.72 million.

AOCP launches $50 million fund for fintech and digital securities ecosystem

As an estimated $80 trillion in global equities is being placed on the blockchain, Alpha Omega Capital Partners just launched their $50 million fund to build the digital securities ecosystem in Asia and the Middle East,

As a pick-and-shovel play, Alpha Omega is the first tokenized venture capital fund, focused on investing in companies that will enable the tokenization of global assets such as issuance platforms, digital securities exchanges, and liquidity pools.

As the number of firms in the technology industry continues to increase each day, so does the need for financing in order to scale their businesses. Smaller companies and individuals will usually have trouble approaching banks for loans due to their strict credit requirements and, thus we have seen more and more of these startups begin to explore Venture Capital (VC) as an alternative. These firms, in exchange for equity more often than not, help bolster companies that have the potential for high growth through funding and strategic advisory. The money that these VC firms possess is entrusted to them by a pool of accredited high net-worth investors called ‘Limited Partners’ with concise projections of returns and profit within a specific timeline, which can take up to 10 years for them to see any significant yield. The flip side of the coin is that as of late, there has been a steady decline of financing coming in to certain demographics due to a string of historically failed investments and early-stage firms transitioning into growth funds to support the capital needs of their respective portfolios.

This makes it difficult for potential Limited Partners to invest in newer funds, as the risk is even higher than before. Alpha Omega seeks to alleviate this problem by tokenizing their fund wherein investors are able to exit their position on a digital securities exchanges at anytime.

According to Managing GP Anderson Tan, now is the perfect time to invest, just as the foundations and groundwork for the ecosystem are being laid down. “Snail Mail became Email, Cash is slowly transitioning into Digital Money, and now Securities are becoming Digital Securities.”

“In a new ecosystem, exits happen faster and valuations are higher as seen previously in the cryptocurrency ecosystem with companies like Poloniex being acquired by Circle for $400 million,” he said. “The proper secondary market liquidity will come by 2020 onwards. By the end of 2021, there will be an estimated $10 trillion in digital securities.”

The Venture Capital firm is in partnership with recognizable names in the industry, such as:
● Jojo Flores (Plug N’ Play),
● Jay Fajardo (Launchgarage),
● David Siemer (WaveMaker Partners),
● Jonathan Nelson (Hackers/Founders and HACK Fund),
● John Lee (Blockchain Valley Ventures),
● Mohan Belani (e27),
● David Atkinson (Holochain),
● Miko Matsumura (Gumi Cryptos VC and Evercoin Exchange),
● Jamie Finn (Securitize and 22x Fund),
● Darren Marble (Issuance)
● and Early Boykins (Andra Capital) to name a few.

Alpha Omega will be opening to investors first among the team’s personal network, with an expected first close before the end of 2019.

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