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Lawmakers critical of Duterte join calls versus anti-terror law

OPPOSITION LAWMAKERS on Sunday joined the dissent against a stronger anti-terror measure that President Rodrigo R. Duterte enacted last week, saying it arms the government to violate human rights and stifle dissent.

“With legal challenges expected to reach it, I call on our Supreme Court to protect our democracy and invalidate this legal abomination before Mr. Duterte, and other tyrants that might follow him,” Senator Leila M. de Lima, a staunch critic of the President, said in a statement.

She said the law could “inflict further oppression and repression upon our people.”

Mr. Duterte signed the bill into law on Friday amid criticisms from militant groups and calls from his allies to review the measure.

A group of lawyers led by Howard M. Calleja asked the Supreme Court at the weekend to void the law that they said was “repugnant and perilous to the constitutional rights of every citizen.”

The Anti-Terrorism Act neither contained compelling state interests nor did it show “that the least intrusive means were undertaken,” according to an excerpt of the lawsuit posted by the lawyers on Facebook.

The group, which asked the tribunal to stop the enforcement of the law, said they sent the petition to the high court by electronic filing and would submit a printed copy on July 6.

Named respondents were Cabinet officials including the heads of the Foreign Affairs, Defense, Interior and Local Government, Finance and Justice departments.

Meanwhile, Albay Rep. Edcel C. Lagman said the law had repressive provisions. “The new Anti-Terrorism law must be cleansed of its constitutional infirmities notwithstanding the say-so of its implementors,” he said in a statement.

“It is incumbent upon the Supreme Court to use the scalpel of judicial review to excise the numerous oppressive and unconstitutional provisions of the new law in its adjudication of relevant petitions,” he added.

The law allows an anti-terror Council made up of Cabinet officials to perform acts that are otherwise reserved for courts, such as ordering the arrest of suspected terrorists. It also allows the state to keep a suspect in jail without an arrest warrant for 14 days from three days now.

It also considers attacks that cause death or serious injury, extensive damage to property and manufacture, possession, acquisition, transport and supply of weapons or explosives as terrorist acts.

“The palace will leave it to the Supreme Court to decide on these petitions and will abide by whatever the ruling is,” Presidential Spokesman Harry L. Roque said in a statement on Sunday.

National Security Adviser Hermogenes Esperon, who was also named a respondent in the lawsuit, said the government would face the legal challenge.

“Our legal team is ready and the President studied that thoroughly,” he told DZBB radio on Sunday.

Mr. Esperon said the rules that will enforce the law would contain safeguards against abuse.

The law will take effect 15 days after it is published. The rules must come out within three months.

The House of Representatives last month adopted the Senate version of the bill that it approved in February.

The measure would have lapsed into law on July 9 had Mr. Duterte failed to sign or veto it. — Charmaine A. Tadalan and Gillian M. Cortez

New COVID-19 infections hit record as lockdowns eased

THE Department of Health (DoH) reported 2,434 new coronavirus infections on Sunday — a record increase — bringing the total to 44,254.

The death toll rose to 1,297 after seven more patients died, while recoveries increased by 489 to 11,942, it said in a bulletin. DoH traced the increase in cases to the eased lockdown.

“As the country continues to ease community quarantine measures, the rise in the number of cases today may be attributed to the increased contact among the population,” it said.

Meanwhile, Health Undersecretary Maria Rosario S. Vergeire told reporters in a Viber message they would stop giving the HIV drug lopinavir/ritonavir and anti-malarial drug hydroxychloroquine to coronavirus patients, taking their cue from the World Health Organization (WHO).

The WHO said results showed that these drugs did not cut the death rate. — Vann Marlo M. Villegas

Immigration workers sacked over Wirecard

TWO IMMIGRATION workers were relieved over a false report that the former chief operating officer of German payment company Wirecard AG had entered the country in June before leaving for China.

“We’ll find out if other persons were involved, as well as their motives, once the work of the Bureau of Immigration fact-finding committee is completed,” Justice Secretary Menardo I. Guevarra told reporters via Viber on Sunday.

He said one of them was stationed at Mactan Cebu International Airport, while the other worked at the head office. They were transferred to other units pending investigation, he added.

“Once the fact-finding report shows culpability, the appropriate sanctions will be imposed,” Mr. Guevarra said.

The justice chief on Saturday said the bureau had found that Jan Marsalek did not visit the Philippines, based on CCTV footage, airline manifests and other records.

He said they were investigating people involved in encoding fictitious entries. “I will direct the National Bureau of Investigation to probe into this matter more deeply and determine possible criminal responsibility,” he told reporters in a Viber message at the weekend.

Mr. Guevarra last month said Mr. Marsalek, a dismissed board member and former chief operating officer of Wirecard, arrived in the country on June 23 and left for Cebu morning the next day based on the Immigration bureau’s central database.

However, closed-circuit television footage did not show him arriving and there was no record of any flights to China that day, he said.

Mr. Guevarra last month ordered state agents to probe people involved in the missing $2.1 billion from Wirecard.

Philippine central bank Governor Benjamin E. Diokno had said none of the German company’s missing money had entered the country’s financial system. — Vann Marlo M. Villegas

Gov’t allows bigger religious gatherings

THE GOVERNMENT would allow bigger religious gatherings to test health protocols for the coronavirus before easing the lockdown in many places around the country, according to the Justice department.

The presidential palace earlier said congregations may accommodate a tenth of their usual capacity starting July 10.

“There will be pilot dry runs in a few selected churches, mosques and temples until July 10,” Justice Secretary Menardo I. Guevarra told reporters in a Viber message on Sunday. “Thereafter, 10% attendance in all religious worships in general community quarantine areas will begin.”

Churches may voluntarily suspend worship activities amid the pandemic, he added.

The state has allowed 50% religious attendance in areas under a modified general quarantine since July 1.

Presidential Spokesman Harry L. Roque on Friday also said travel agencies could operate with a skeletal workforce to process refunds for canceled bookings.

Salons and barbershops were now allowed to operate, while professional basketball and football teams were allowed to resume practice.

Metro Manila remains under a general quarantine along with the provinces of Benguet, Cavite, Rizal, Leyte, Ormoc and Southern Leyte, and some cities in Cebu province. — Vann Marlo M. Villegas

Regional Updates (07/05/20)

More tourism areas start catering to home crowd

THE HUNDRED Islands National Park in Alaminos City is among the latest tourism sites to reopen for the local crowd as the government banks on domestic travelers to help bail out the industry that is among the most affected by the coronavirus crisis. The park reopened on July 1 for residents of Pangasinan’s 1st District at least until Aug. 31. The district is composed of the towns of Agno, Sual, Anda, Bani, Bolinao, Burgos, Infanta, Dasol, Mabini, and Alaminos City. “Health protocols and guidelines have been laid to ensure your safety, health and wellbeing during your visit,” the City Tourism Office said in a post on its Facebook page. Among the guidelines include a limit of 1,000 guests per day for the island tours, with priority to be given those who will make reservations online or via phone call. Fifteen accommodation establishments in the city have also been given a certificate to operate by the Department of Tourism. The city and the rest of Pangasinan are under the modified quarantine category, where tourism facilities are allowed to operate at 50% capacity. As of July 5, the city had six confirmed coronavirus cases, of whom four recovered, one under treatment, and one died.

PALAWAN VISIT
Boracay, the country’s most popular beach destination for both local and foreign tourists, was the first to reopen for residents of the Western Visayas Region. Tourism establishments in Panglao, Bohol have also resumed operations for the provincial market. In Mindanao, some of the areas that have reopened to local tourists include Davao Oriental, Samal, and Bukidnon. Last Friday, Tourism Secretary Bernadette Romulo-Puyat visited another tourist favorite, Palawan. Three of the most popular areas in the province — Coron, El Nido, and San Vicente — are being prepared for reopening. “The Department of Tourism sees domestic travel as the catalyst to reviving our industry. We are happy that Governor (Jose C.) Alvarez had earlier expressed his intention to reopen tourism in the province as early as possible, and we will be pleased to work with you towards recovery every step of the way,” Ms. Puyat is quoted in a statement.

Nationwide round-up

More Filipinos from Japan, Saudi Arabia arrive; repatriation count now over 68,000

NEARLY 600 overseas Filipinos from Japan and the Kingdom of Saudi Arabia arrived at the weekend, bringing the total number of repatriations since February to 68,440 as the coronavirus pandemic displaces workers and affects global travel. The most recent arrivals include 558 stranded Filipinos from Japan and Saudi Arabia who were brought home via two chartered flights on Saturday, the Department of Foreign Affairs (DFA) reported in a social media post Saturday evening. Of this, 204 were stranded tourists, students and workers in Japan, according to the Philippine Embassy there. “The 204 passengers, some coming from as far as Okinawa, departed from Narita International Airport onboard the 3rd repatriation flight organized by the Embassy,” it said in a statement. There have been 830 repatriated Filipinos from Japan, including 445 seafarers who were on board the M/V Diamond Princess and another batch of 160 stranded individuals, among others. Of the full repatriation count, 35,059 are seafarers and 33,381 are land-based workers. Meanwhile, the DFA has so far monitored 8,629 confirmed coronavirus cases involving Filipinos abroad, of whom 5,200 have recovered, 2,866 are undergoing treatment and 563 have died.

CLOSED OFFICES
In a separate development, the DFA announced its Office of Consular Affairs in Aseana in Parañaque City and NCR South in Alabang will be closed on Monday until further notice for disinfection and other health safety protocols. “Applicants who have prior appointments will be accommodated as soon as these offices resume operations,” the department said. — Charmaine A. Tadalan

Filipinos still banned from foreign travel for leisure, business

THE BUREAU of Immigration (BI) reminded the public that travelling abroad for leisure, or even business, is still prohibited. “We want to emphasize and reiterate that Filipinos are still prohibited from leaving the country unless they are Overseas Filipino Workers, holders of study visas or permanent residents in the country of their destination,” Commissioner Jaime H. Morente said in a statement on Sunday. The reminder was issued after six Filipinos bound for Cambodia via a chartered flight were barred from travelling. Port Operations Division Chief Grifton SP. Medina said the six passengers were offloaded from the flight after telling immigration officers that they are going there for a business meeting. BI said there were several other instances of Filipino tourists who were stopped from boarding their flights at the international airport in Manila given restrictions due to the coronavirus crisis. “These travel restrictions are only temporary and we should always bear in mind that the government implemented these measures to protect our countrymen against this deadly coronavirus,” Mr. Medina said. The country has been under quarantine since mid-March to contain the spread of the virus. — Vann Marlo M. Villegas

POEA adapts online submission for overseas worker agencies

EMPLOYMENT AGENCIES for overseas workers are now required to submit online the requirements for license renewal and application while actual inspections are suspended amid the coronavirus crisis. The Philippine Overseas Employment Administration (POEA) announced the policy through Advisory No. 90 dated July 3. Apart from sending via e-mail, another option is leaving hard copies of the required documents in designated drop boxes at the POEA office lobby. The new rule applies to agencies of both land-based and sea-based workers. “(T)he ocular inspection/assessment of landbased and seabased agencies, including applicant-companies, undertaken by the Inspectorate of the Licensing branch and the POEA Regional Offices have been temporarily suspended,” the agency said. POEA will validate the documents after the suspension is lifted. — Gillian M. Cortez

No more Bayanihan grants to LGUs after low usage rate of 15%

LOCAL GOVERNMENT units (LGUs) have used only P5.5 billion of their one-time grants to support their coronavirus disease 2019 (COVID-19) containment efforts, a Budget official said, adding that no more additional funding will be provided.

Undersecretary Laura B. Pascua told BusinessWorld that counting by liquidation reports, only 14.86% has been used of the P37-billion Bayanihan grant program.

“The largest part of the fund was used by LGUs for food assistance and medical supplies,” Ms. Pascua said via Viber last week.

She said LGU constituents were also benefiting from the social programs of the national government, including those implemented by the social welfare, health and labor departments.

“There is no plan to give additional funds to LGUs aside from their IRA (internal revenue allotment) for this year, and the funds under Local Government Support Fund (LGSF),” Ms. Pascua added.

In a hearing by a House of Representatives committee last week, Acting Socio-economic Planning Secretary Karl Kendrick T. Chua said that LGUs have sufficient funds to respond to the pandemic as the usage rate of their Bayanihan grants is still “really small.”

However, Bataan Second District House Rep. Jose Enrique S. Garcia III said the funds were difficult to utilize as LGUs because of the limited spending areas eligible for funding.

“I think the problem with the downloaded funds for the LGUs is may menu, limited lang din kasi ‘yung pwede nilang gamitin with the menu… parang nasa health lang ‘yung menu eh, so talagang hindi ganun kadaling i-utilize (LGUs were limited by the menu, which mostly allows health expenses, and that makes the grant not easy to utilize,” Mr. Garcia said at the same hearing.

The Department of Budget and Management (DBM) in mid-April released to LGUs the one-time financial aid worth P30.8 billion to cities and municipalities and P6.2 billion to provinces. The amount is equivalent to one month of their IRA, or their share of the national taxes, for cities and municipalities and half a month’s worth for the provinces.

The grant is meant to boost LGUs’ war chest against COVID-19 pandemic, which can only be used during the six-month period of state of calamity that started on March 16. If not extended, the state of calamity across the country will end by September.

Among the items where the Bayanihan grant can be used are personal protective equipment; test kits; medical supplies, tools and equipment; food, transportation and accommodation expenses for health workers and other personnel of public hospitals; construction, repair or rental of additional establishments to accommodate COVID-19 patients or those for monitoring; training of personnel and other COVID-19-related expenses of the local government and the hospitals it operates.

The DBM said the funds cannot be used for cash assistance programs; personnel services expenditures such as salaries; administrative and traveling expenses; registration fees for training, seminars and conferences; furniture, fixtures, equipment or appliances for administrative offices, and motor vehicles, including ambulances.

Unutilized funds will be remitted back to the national treasury. — Beatrice M. Laforga

Senate to legislate bad loan transfers from banks via separate bill

THE Senate will legislate bank bad loan transfers to asset management companies in a separate bill, rather than as an amendment to the Bayanihan 2 bill, the head of the chamber’s finance committee said Sunday.

Senator Juan Edgardo M. Angara said among the amendments proposed by the executive department is the measure that will unburden the banking system of bad loans in the Bayanihan 2 bill.

“Dun sa pinadala na gusto pa nilang dagdagan, ‘yung iba baka gawin na lang separate measure tulad ‘nung tinatawag na FIST bill (Financial Institutions Strategic Transfer) (Among the proposed amendments, we might have to file a separate measure for FIST),” he said over DZBB radio Sunday.

“I think ididinig na po ‘yun ng banks committee ni Senator Grace (It’s still being heard by Senator Grace’s banks committee),” according to Mr. Angara, who is also vice chairman of the banks, financial institutions and currencies committee. He was referring to Sen. Grace Poe-Llamanzares, who chairs that committee.

The proposed amendments also included minor changes to the Bayanihan 2 bill, which Mr. Angara said it will be tackled in the bicameral conference committee, as the measure has been approved on second reading.

Bayanihan 2, also known as Senate Bill No. 1564, hurdled second reading on June 3, but was not able to obtain final-reading approval immediately in the absence of notice from Malacañang certifying it as an urgent measure. Non-urgent measures need a gap of three days between second and third readings, while urgent measures may be passed on third reading on the same day as the second.

Mr. Angara said the FIST legislation is similar to the Special Purpose Vehicle Law, enacted in 2002 in the wake of the Asian financial crisis.

“Maraming gipit na negosyo, dapat mabigyan ng puwang sa pagbabayad ng utang, at para naman ma-incentivize o ma-encourage ‘yung ating mga bangko na gawin ‘yan (There are many businesses in financial distress that need debt relief, and we need to give banks incentives to do so),” he said.

“Tanggalin o luwangan natin ‘yung mga regulasyon sa mga bad loans o non-performing loans. (That will involve the removal or easing of many rules on bad loans or non-performing assets),” he added.

The House of Representatives approved its version of the measure, House Bill No. 6816, on final reading on June 2.

The House version provides that transfers of non-performing assets from financial institutions to asset-management companies are exempt from documentary stamp tax, capital gains tax, value-added tax and creditable withholding income tax.

Rizal Commercial Banking Corporation Chief Economist Michael L. Ricafort said if passed, the measure will provide “greater flexibility” for banks to unload bad loans and focus on lending further to keep the economy afloat.

“The FIST Bill when signed into law provides greater flexibility/leeway for banks to unload NPLs and ROPAs (real and other properties acquired), so banks can better concentrate on increasing/expanding their lending activities as well as better service their deposit and loan clients,” he said in an e-mail.

“The FIST Bill would help support the overall economic recovery program by ensuring the continued financial strength/resilience of the banking system after the COVID-19 lockdowns.” — Charmaine A. Tadalan

CoA rejects P377M worth of tax credits granted to four textile firms

THE Commission on Audit (CoA) rejected P377.29 million worth of tax credits granted to four textile firms by the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (OSS) between 2008 and 2012, according to the Department of Finance (DoF).

The DoF said in a statement over the weekend that the CoA Special Audits Office (SAO) issued notices of disallowance for the tax credit certificates (TCCs) granted by the textile companies.

These include the P40.88 million granted to Capital-Roll Knit Corp. (CRC), P20.01 million to Tai-Cheng International Resource, Inc. (TICIRI), P15.76 million to Primeknit Manufacturing Corp. (PMC), and P15.03 million to Uni-Glory’s Knitting Corp. (UKC).

The DoF said it received the letter from SAO Director Pearl L. Ramos, noting that the TCCs do not meet the requirements for the grant of tax credit.

It said the importers the companies bought their textile materials from are not registered or accredited with the Board of Investments (BoI) and Bureau of Customs (BoC).

The importers also could not prove payment of duties and taxes, or if ever paid only minimal duties and taxes to Customs, according to the DoF.

“There was no proof of payment of import taxes and duties by the suppliers; validation of actual exportation by the (OSS); in addition to questionable physical existence (of the companies); and the tax credit granted even exceeded the reported payments by the claimants to the suppliers,” it read.

It said the Bulacan-based CRC’s disallowed tax credits covered 10 TCCs issued between 2010 and 2011. CRC also had 75 TCCs granted in 2008-2012 disallowed under a Feb. 21 CoA decision, worth a combined P285.58 billion, the DoF said.

The DoF said the TCCs for the other companies were issued to Bulacan-based UKC in 2010; Valenzuela City’s PMC between September and November 2008; and Calamba, Laguna’s TICIRI in June 2011.

It added that “several officials and employees” of the DoF, OSS, BoI and BoC responsible for processing and approving the TCCs, as well as the recipients from the four textile firms “were held liable by CoA in various instances when the TCCs were issued.”

The SOA said the companies that received the TCCs “did not use them for their own tax obligations and merely transferred their TCCs to other companies.”

The audit disallowances will become “final and executory” if no appeal is filed within six months.

The OSS is an inter-agency body run by the DoF, BoC, BoI and Bureau of Internal Revenue, to process applications for TCCs and duty drawbacks.

Tax credits are given to exporters and manufacturers of products for export, which are registered with BoI. Proof of duties and taxes on raw materials and supplies are a prerequisite for a TCC, since approved applications will mean refund of these taxes.

The DoF issued Department Order No. 039-2018 forming a task force that will investigate and go after officials and firms involved in illegal transactions after uncovering a tax credit scam in 2018.

In July 2018, the DoF also flagged P11.18 billion worth of TCCs that the OSS granted to 33 textile companies between 2008 and 2014 which were either not eligible for the benefit or allegedly non-existent. These were based on CoA findings as well.

Around P8.85 billion worth of tax credits were granted to 29 firms despite the absence of proof that duties and taxes were paid, finished products were exported. Import records from the BoC were also missing.

Meanwhile, some P2.34 billion worth of TCCs were issued after the expiration of the eligibility period. — Beatrice M. Laforga

IP authority seeks power to take down social media posts for fake goods

THE intellectual property office is seeking further enforcement powers to order the removal of social media posts selling counterfeit or pirated goods and materials.

The Intellectual Property Office of the Philippines (IPOPHL) said in a statement Saturday that its previous rules did not explicitly cover intellectual property rights-infringing activities conducted online.

Amendments would give the office the ability to issue warning notices and compliance orders directing the online platform to take down posts following a counterfeiting or piracy complaint.

“The way to go about it would depend on facts before the enforcement office. We may order the immediate blocking of a seller but we will not necessarily do that all the time. However, we will definitely always call the platform to immediately exercise its IP (intellectual property) Policy aside from possibly directing it to remove an infringing post,” Ann N. Edillon, director and officer-in-charge of the IPOPHL Enforcement Office (IEO) said.

“Where there is violation of, or resistance to, an IEO order issued in relation to an administrative complaint, IEO can file a case before the pertinent local government unit or the DTI (Department of Trade and Industry) for the cancellation of the violating seller’s business permit.”

Under the proposal, IPOPHL would have enforcement powers against the sale, offering for sale, distribution, trade, display, streaming, broadcasting, and other preparatory steps necessary to make available counterfeit and pirated goods to the public via electronic, digital, or online means.

IPOPHL’s enforcement orders would also include the permanent take down or blocking of infringing online sites and accounts, cease and desist orders, and orders to remove counterfeit or pirated goods from digital platforms or physical establishments.

The office can ask the National Telecommunications Commission to remove access to a site violating intellectual property rights “without stepping on its regulatory jurisdiction” as the commission usually follows orders issued by courts.

IPOPHL held consultations with brand owners and law firms on the proposed revisions. The proposed rules will be submitted to IPOPHL Director General Rowel S. Barba, who has final say on approval.

Piracy accounted for nearly a fifth of the 21 intellectual property rights violations reports received by the enforcement office in March. — Jenina P. Ibañez

New WESM system, Mindanao spot market set for December launch

THE Independent Electricity Market Operator of the Philippines (IEMOP) hopes to launch the upgraded design of the Wholesale Electricity Spot Market (WESM) and the new spot trading floor in Mindanao by December.

The independent operator reported to the market participants last week that it is still conducting preparatory activities to gauge both system and participants’ readiness for the new market management system, as well as completing various regulatory approvals.

The IEMOP, with the Philippine Electricity Market Corporation (PEMC), is targeting Dec. 26 for the launch of the new system.

“It is expected that the DoE (Department of Energy) will approve of the go-live date once all the requirements under the regulatory approvals, system readiness, and trading participants’ readiness are completed,” Andrea May T. Caguete, assistant manager for Market Information Modelling at IEMOP, said in her presentation.

The operator recently resumed its parallel operations program to familiarize participants with the new market system. The program covers processes from bidding to billing.

“We are still a few more steps away to achieving an acceptable rate of participation in the parallel operations program,” Ms. Caguete noted.

Also, a trial operations program was launched for Mindanao participants, the involvement of which remains low.

“There is still a low turnout for embedded generators and directly-connected customers in the region,” Katrina A. Garcia-Amuyot, IEMOP manager for Stakeholder Services, said. Out of 28 Mindanao generators, only four have joined, while two out of 13 customers have participated.

IEMOP is still conducting performance tuning and reliability testing, both of which will end in August, as well as security assessment with the National Grid Corp. of the Philippines (NGCP), which will start next week. By the end of September, it expects the market system to be ready.

On regulatory requirements, a system audit will be held this month. A software certification from the audit is needed for the Energy Regulatory Commission’s approval of its price determination methodology and certification of market readiness by the PEMC Board.

Also, its rules and manuals for the enhanced WESM system remain pending with the DoE.

The upgraded system will introduce a five-minute market trading interval which is expected to make the market efficient and attractive for investors in the long run, according to Isidro C. Cacho, IEMOP’s chief corporate strategy and communications officer.

Meanwhile, IEMOP noted that spot prices in June rose to P3.25 per kilowatt-hour (kWh) from May’s P2.19/kWh primarily due to higher demand as commercial and industrial establishments resumed operations with the easing of quarantine.

The operator observed a spike in prices in the second week of June due to plant outages.

“Ito ang period na nagkaroon tayo ng price spikes because, aside from mataas ang peak demand, maraming mga generators na nag-force outage at maintenance outage (Prices spiked during the period because peak demand was high and many generators experienced outages),” IEMOP Chief Operating Officer Robinson P. Descanzo said. — Adam J. Ang

Are companies willing to divest after the pandemic?

In 2019, companies in the Asia Pacific sought to sharpen their focus on capital allocation, which include, among others, carving out non-core businesses or underperforming assets. In fact, the 2019 EY Global Corporate Divestment Study reported that 82% of executives in these companies planned to divest within the next two years. However, in light of the COVID-19 crisis — with governments implementing border closures and lockdowns that have triggered business shocks and disruption — will the appetite for divestment remain high among Asia Pacific companies as they look beyond the crisis?

Before the crisis, EY surveyed Asia Pacific companies in early 2020 then conducted a resurvey in April 2020. The results affirmed that many companies still had a high intent to divest. Of these companies, 75% said that they planned to initiate their next divestment in the next two years — marginally up from 74% pre-crisis — with 59% saying that they aim to divest in the next 12 months.

HOW WILL THE CRISIS INFLUENCE ASIA-PACIFIC DIVESTMENT ACTIVITY?
There are four key factors that will, individually and collectively, likely drive and influence regional corporate divestment activity in the next six to 12 months.

Factor 1: Balance sheet strength

Some companies have turned to the capital markets to build up weakened balance sheets, which reduces the need to divest to raise liquidity at this volatile time. For example, several well-known Philippine companies are raising up to P30 billion this year via bond issues, with tenors ranging from two to 30 years. These will be used to fund new and existing projects, working capital, refinance costly existing debts, and general corporate purposes. Additionally, a bank plans to issue the Philippines’ first bonds aimed at raising fresh funds in response to the pandemic, specifically for eligible micro, small and medium enterprises.

However, companies that have difficulty in accessing capital markets may need to think more proactively around capital recycling through a divestment strategy.

These strategic capital decisions were teased out in the April 2020 survey where 54% of Asia Pacific companies said they are contemplating raising capital in response to the pandemic. Moreover, 64% said they would seek to reduce debt through divestments.

Factor 2: Digital transformation

If digital transformation was not a strategic priority pre-crisis, it is and should be now. A number of companies were forced to rely almost entirely on their existing digital infrastructure to function and communicate.

The survey revealed that 56% of Asia Pacific companies will likely divest for this purpose, a significant increase from 31% of respondents pre-crisis. Remarkably, 67% of executives from Greater China said they would divest to fund technology investments — up from 42%. It seems that divestments have become an even more attractive option to fund needed technology investments.

Factor 3: Supply chain diversification

Globally, 36% of companies (27% pre-crisis) were planning to focus more on their supply chains prior to divesting. US-China trade tensions had already brought this issue into focus. The crisis has now led them to reevaluate and reengineer their supply chains to increase control and minimize the risk of future disruption. This will likely lead to increased investment and divestment activity. Consider how Japan recently set aside $2.2 billion of its economic stimulus package to aid its manufacturers shift production out of China as the crisis disrupted supply chains. Additionally, according to the most recent EY Global Capital Confidence Barometer, 67% of Asia Pacific companies (73% of Greater China respondents) said that they had already taken steps to restructure their supply chains.

Factor 4: Portfolio optimization

According to 54% of Asia Pacific companies surveyed, asset portfolios will need to be re-shaped for a post-crisis world. Another 68% of the companies surveyed stated that they had held on to assets for too long, triggering portfolio optimization moves, which they expect to accelerate due to the crisis. Moreover, 58% of the companies expect to see an increase in distressed divestments over the next 12 months.

While it’s difficult to anticipate what the future holds, companies should start making adjustments based on macroeconomic scenarios that are likely to emerge.

HOW SHOULD SELLERS PREPARE?
Companies should actively refocus their attention on preparing assets for sale as part of pursuing their medium-term divestment strategies, most of which were developed pre-crisis and remain in-play. In some cases, the pandemic may have caused an acceleration in divestment plans.

However, these strategic capital decisions need to be reassessed due to the crisis. For instance, about 53% of Asia Pacific companies surveyed said that the economic impact of COVID-19 will likely increase the price gap between what sellers expect and buyers are offering. In addition, 52% said there will be less certainty regarding which assets to divest — a sharp increase from 28% pre-crisis.

Some 46% stated that their level of divestment preparation would also have to be revamped as how companies prepare their assets is crucial for a successful sale. The standard approach for sellers is to ensure that the business is as attractive as possible by aligning management incentives with a good sale outcome and ensuring that corporate overhead allocations are thought through.

However, this approach will now need to be fortified by other key considerations.

As a result of the impact on financials in the first two quarters, sellers should craft a credible story based on reasonable assumptions that would explain to prospective buyers how their companies will look and perform in a post-crisis world. This could be an opportunity as COVID-19 resulted in rethinking the way many organizations run their businesses and the close scrutiny of cost models.

Sellers should also present a story depicting at least the next 12 to 18 months. The more clarity and certainty they can provide prospective buyers over a longer period of time, the higher the likelihood of receiving higher bids for their assets. They must evaluate the vulnerability of supply chains to post-crisis-type risks. Prospective buyers will likely focus on this, so sellers should have a robust action plan to mitigate this risk. As companies rethink sourcing, there will be inevitable consequences for lead times, cost efficiency and, hence, working capital.

COVID-19 has been the ultimate test of demand elasticity, for which the aftermath analysis will provide very interesting insights.

PORTFOLIO MANAGEMENT WILL NEED A STRATEGY RETHINK
While some large companies across the Asia Pacific had increasingly sophisticated approaches to divestment and active portfolio management, a buy-and-hold strategy still remains all too common among many companies in the region. However, the impact of COVID-19 could help accelerate this shift towards a more sophisticated, focused and intensive portfolio management approach in the region.

Coming out of this crisis, EY teams expect to see far more sophisticated ways of thinking and strategies around topics like balance sheet strength, capital allocation, and supply chain vulnerabilities among others, ultimately provoking a strategic rethink around portfolio management and driving both investment and divestment activities.

EMERGING WITH AGILITY AND RESILIENCE
Now is a crucial time for Asia Pacific companies to be decisive as they position themselves to emerge from the crisis with greater operational agility and resilience. Essential to that will be a divestment strategy shaped by various key factors and the need for portfolio optimization in preparation for a post-crisis world. These include rebalancing portfolios and preserving value — with 71% of Asia Pacific sellers reporting that they would only accept a 10% or less reduction in sales price in the next six to 12 months.

The Asia Pacific region has a history of coming out stronger after major crises. The decisiveness shown by governments to deal with COVID-19 gives confidence and hope that the region will potentially lead a resurgence in global economic activity.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.

 

Miguel Carlo S. Rancap is a Senior Manager from the Strategy and Transactions Service line of SGV & Co.

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