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Gov’t postpones panda bond sale

THE GOVERNMENT will likely tap the offshore market to raise around $1 billion to $1.5 billion in dollar-denominated papers and $1 billion via yen bonds this year, but is unlikely to return to the yuan bond space in the first half as the coronavirus disease 2019 (COVID-19) outbreak continues to affect China’s economy.

“The plan is still there, that about $1 billion to $1.5 billion can also be sourced from the dollar market and another $1 billion (in yen equivalent) from the ‘samurai’ market. But of course, these are things that we have to continue to watch in terms of market developments given where we are right now and also the lingering impact of COVID-19,” National Treasurer Rosalia V. de Leon told reporters Monday.

Ms. De Leon said they are monitoring markets to see if the Treasury can offer all the offshore issuances in the first semester as planned.

“We’re seeing how the market developments are right now in the dollar market, as 10-year (US Treasuries) have plunged to even as low as 0.5%. There’s risk-off sentiment at the moment,” she said.

“We have to see when a good market window would be when there would be more investors who are going to take the chance on emerging market issuances,” she added.

As China continues to suffer the brunt of the outbreak’s fallout, Ms. De Leon said the renminbi-denominated bonds they originally planned to offer this month are unlikely to be issued within the first half.

“For now, wala muna because it’s supposed to be in March, and of course, we are also marking the ‘panda’ market development. So I think we will not be seeing any ‘panda’ issuance at this time, obviously because of COVID-19,” Ms. De Leon said.

Asked if the government could offer these bonds in the second semester instead, the official said they will have to “see in terms of the rates and of course, if there would be opportunities for other markets to be able to make up for possible take-up from the ‘panda’ issuance.”

In the meantime, the National Treasurer said they will take advantage of liquidity in the local market as well as declining interest rates.

“We’re saying nga na good source ang local market for our funding given the liquidity and where the rates are right now, and of course, that would also mitigate foreign exchange risks on our end,” Ms. De Leon said.

The official said due to recent developments, the P1.4-trillion borrowing program for the year may face “some adjustments” amid expected higher spending by the government on efforts to contain the virus, coupled with lower revenues collected by agencies due to a decline in sales and imports.

However, she said the possible increase in borrowings will “not be very huge” as the country’s two largest tax-collecting agencies, Bureau of Internal and Revenue and Bureau of Customs, are expected to “catch up” in the second half after businesses and trade recover from the impact of the virus.

In January, the government raised €1.2 billion out of total bids worth €4.3 billion from its offer of two tenors of euro-denominated bonds, broken down into €600 million each for three-year and nine-year papers.

The bonds carry coupon rates of 0.1% for the three-year bonds and 0.7% for the nine-year, a spread of 40 basis points (bps) and 70 bps over benchmark rates, respectively.

Of the P1.4-trillion borrowing program this year, the government will borrow 25% or around P350 billion from external sources, while the remaining 75% will be sourced from the local market. These will help fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product.

The Treasury sold $1.5 billion in 10-year dollar-denominated global bonds in January 2019 priced 110 bps above benchmark rates. The offer was met with strong demand, with total bids reaching $4 billion.

In May last year, the government also raised 2.5 billion renminbi (RMB) or $363.3 million via three-year panda bonds at a coupon of 3.58%. The offer was met with strong demand with total bids reaching RMB11.25 billion.

The Treasury also issued ¥92 billion ($860 million) following a multi-tenor offer of yen-denominated bonds in August last year. Broken down, ¥30.4 billion was raised via three-year samurai bonds at a coupon rate of 0.18%, ¥21 billion from five-year papers priced at 0.28%, ¥17.9-billion from seven-year securities at a 0.43% coupon, and ¥22.7 billion through 10-year bonds priced at 0.59%. — Beatrice M. Laforga

NEDA sees job losses up to 60,000 due to virus

By Charmaine A. Tadalan and Beatrice M. Laforga
Reporters

THE National Economic and Development Authority (NEDA) estimated up to 60,000 jobs in the tourism and manufacturing sectors may be lost if the coronavirus disease 2019 (COVID-19) outbreak persists until June.

“In terms of jobs, we’re looking at potential losses of between 30,000-60,000 jobs,” NEDA Undersecretary Rosemarie G. Edillon told the Senate economic affairs committee during Monday’s hearing on the COVID-19 impact on the economy.

She reiterated NEDA projections that the COVID-19 outbreak may cut gross domestic product (GDP) growth by 0.3-1% if it continues until end-2020.

“With respect to impact on GDP growth, impact is 0.3-1%… Ang scenario natin dati, ang (full-year GDP) target 6.5-7.5%, then we’re looking at 5.5-6.5% (this year),” Ms. Edillon said.

In 2019, the Philippine economy grew by 5.9%, below the 6%-6.5% full-year target set by the government.

The NEDA said the tourism industry is facing a possible 1.42-million reduction in foreign tourist arrivals this year, as two of its biggest sources of tourists — China and South Korea — try to contain the spread of the virus.

Of the 8.26 million visitor arrivals last year, South Korean tourists accounted for 1.98 million, followed by Chinese tourists (1.74 million).

The NEDA estimated the tourism industry’s foregone gross value added to reach between P93-187 billion.

At the same time, Ms. Edillon said the government has yet to receive any reports of significant job losses in the exports industry.

“Right now, we’re saying there are other exports market, pwedeng i-diversify. So far we have not received significant (report),” she said.

With these developments, the NEDA proposed that Congress allow Philippine exporters to temporarily sell their products in the domestic market, as well as approve the P2-billion supplemental budget requested by the Department of Health.

“We are requesting that we allow exporters to sell to the domestic market, according to the FIA (Foreign Investments Act), if they’re in the (economic) zone they should be exporting 70%,” Ms. Edillon said.

She also said the NEDA will look into whether this could be permitted through a Philippine Economic Zone Authority (PEZA) board resolution or executive order, considering there are only two session days left before Congress goes on a seven-week break.

The Confederation of Wearable Exporters of the Philippines, for one, said it has started implementing temporary forced leaves for workers.

“This is our measure when the supplies are not coming in because the whole supply chain is affected, so we’re doing temporary forced leave in some of the factories,” Executive Director Maria Teresita Jocson-Agoncillo.

Ms. Agoncillo said there is an “average of 3,000 workers per factory, we try to minimize 10%, 5% on forced leaves.”

Global supply chains have been disrupted, as Chinese factories are affected by the COVID-19 outbreak. Initial data from the Customs bureau showed imports from China, the country’s biggest trading partner, dropped by 34.7% in terms of volume in February.

In an economic research note yesterday, JPMorgan said the Philippine manufacturing sector will be the “least affected” by the virus fallout in the emerging market (EM) Asia region, alongside Indonesia.

”The COVID-19 outbreak would negatively affect manufacturing activity in EM Asia, through two possible channels: shortages of Chinese parts and softer demand from China,” JPMorgan said.

JPMorgan expects the Philippine economic growth to slump to 4.1% in the first quarter, before recovering to 5.8% and 5.3% in the second and third quarters and again slowing to 4.6% in the fourth quarter. It forecasts full-year GDP growth at 6.2%.

LOWER GROWTH FORECAST
The combined impact of the Taal Volcano eruption in January and the ongoing coronavirus outbreak may slash first-quarter GDP growth by 0.4-08%, according to a joint report by First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P).

“The negative impact of the Taal Volcano eruption and Metro Manila consumers avoiding malls with the lingering COVID-19 impact on tourism may only result in a 0.4% to 0.8% reduction in GDP growth in Q1-2020 but still robust enough to be a top performer in ASEAN-6,” the report read.

Sought for comment, Socioeconomic Planning Secretary Ernesto M. Pernia said in a mobile phone message that the first-quarter growth is “hard to tell” so far.

FMIC and UA&P also placed its full-year GDP growth forecast at 5.9%, lower than the 6.5-7.5% official target range.

If the outbreak ends by summer season, FMIC and UA&P expect a recovery starting the second quarter or “faster growth pace” in the second half, as the economy is largely driven by domestic demand.

Despite the negative news, FMIC and UA&P said this “should not make us oblivious of the solid fundamentals of the economy.”

On inflation, FMIC and UA&P said they “expect a further slowdown on m-o-m (SAAR) basis in February and March as crude oil and commodity prices have plunged as COVID-19 put brakes on China and the world economy’s recoveries.”

Inflation eased at a slower-than-expected 2.6% in February on softer price increases of food, transport and utilities, from 2.9% in January. This brought year-to-date inflation to 2.8%, well within the central bank’s 2-4% target for the whole year.

For the full year, they expect strong government spending, improvements in manufacturing sector and continued implementation of public-private projects “should provide the added impetus” for the overall growth.

“To help reach its growth targets, BSP (Bangko Sentral ng Pilipinas) cut policy rates by 25 bps (basis points on February 6th and will likely cut by another 25 bps in March in the light of COVID-19’s sting in Q1,” the report added.

On Monday, the Health department announced 10 more confirmed cases of COVID-19 in the country, bringing the total to 20 so far.

The administration’s economic team will meet on Tuesday to further assess the potential impact of the outbreak fallout to the economy and its most affected sectors.

Philippine stocks slide into bear market territory

By Denise A. Valdez
Reporter

PHILIPPINE STOCKS plunged by nearly seven percent on Monday, its biggest decline in more than a decade and setting the stage for a return to bear market territory.

Analysts attributed the stock market’s steep decline to increasing concerns over the economic impact of the coronavirus disease 2019 (COVID-19) outbreak.

President Rodrigo R. Duterte on Monday declared a public health emergency to help contain the spread of COVID-19, as the Department of Health announced 10 new cases, all Filipinos. This brought the total number of COVID-19 cases in the country to 20.

The benchmark Philippine Stock Exchange index (PSEi) slid 457.77 points or 6.76% to close at 6,312.61 yesterday, as it headed into bear territory. The PSEi now is down 19.23% from its close at the end of 2019.

A bear market is when the main index falls at least 20% from its most recent peak, which in the case of the PSEi was 8,419.59 on July 16, 2019. The decline of 20% or more should typically be sustained for around two months.

The market’s finish on Monday was its lowest since Jan. 26, 2016, when it closed at 6,311.60. It was also the biggest one-day decline since Oct. 27, 2008 when it fell 12.27%.

“As foretold by the death cross which appeared in December 2019…, the market is in bear territory,” Philstocks Senior Research Analyst Japhet Louis O. Tantiangco said in a text message.

He said the main culprit for the major sell-off is the rising number of COVID-19 infections in the country.

“Worries have escalated on the negative economic impact of the epidemic from tourism, to foreign trade and investments, to supply chains, to possible work suspensions, to consumption, and ultimately, to the laborers who will be the number one victims once the spread worsens,” Mr. Tantiangco said.

While other countries such as China, South Korea and Japan have reported hundreds of COVID-19 cases, the Philippines went for nearly a month without new cases since the Department of Health (DoH) first announced three cases in early February.

PNB Securities, Inc. President Manuel Antonio G. Lisbona said this may be a reason why the market fell significantly when new coronavirus cases, including the first case of local transmission, were announced last week.

“I think the impact of COVID-19 on the Philippines was more of a catch up, in the context of our somewhat delayed reporting of cases given the seeming difficulties in coordination between health care facilities and the DoH,” he said.

“Add to that the unwillingness/fear to report by persons who feel sick. Because of this, it seems that investors think that the number of cases is understated,” Mr. Lisbona added.

For Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, the decline of the PSEi is coming on top of an already volatile market hurt by regulatory uncertainties fueled by the President’s tirades against certain listed firms, and natural calamities that hit the country since December 2019.

“Going forward, coordinated global measures to further contain the coronavirus would be a major catalyst for the global economy and financial markets, as well as any further monetary policy easing, liquidity infusions, and other stimulus measures (including fiscal policy stimulus) to at least shore up or even boost confidence on the global economy and financial markets,” Mr. Ricafort said in mobile text message.

However, the stock market is expected to remain bearish until there are indications the spread of the COVID-19 is slowing or is now under control.

“The market will stay bearish until investors see evidence of a tapering of new infection cases being reported, and this we have no way of forecasting,” PNB Securities’ Mr. Lisbona said.

“The current crisis is not just a demand-side problem where consumers aren’t spending, it’s also a supply-side problem where the disruption in global supply chains are causing difficulties in production. The recent policy rate cuts only provide stimulus on the demand side,” he said.

Philstocks’ Mr. Tantiangco added: “Our economic managers can only do so much… By the end of the day, we are facing a health problem which could only be addressed by a cure.”

Risks stack up for central bank chief in his second year

PHILIPPINE central bank Governor Benjamin E. Diokno’s plate is full as he starts his second year in office.

Mr. Diokno must enforce a range of new laws, including ones allowing the central bank to issue bonds and boost the country’s stubbornly low saving rate. And he ends his first year in office with a fresh global worry: the coronavirus outbreak weighing on tourism, trade and investment.

The former budget secretary has overseen a marked easing of monetary policy since he was picked to head the Bangko Sentral ng Pilipinas in March 2019. In his first year in office Mr. Diokno has lowered the benchmark interest rate by a full percentage point and cut banks’ reserve requirement ratio by four percentage points.

He has distinguished himself from predecessors by giving precise signals of the size and timing of monetary policy moves.

Mr. Diokno “has been very clear on where the rates are headed and what the BSP’s role is in the larger economy,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “The only element that will hinder him from his pro-growth stance is the possible rise of inflation.”

While his agenda includes politically contentious areas like tax evasion and money laundering, Mr. Diokno believes his legacy will be tied to his stewardship of the Philippine economy.

“I want to be remembered as a governor with low inflation and a low unemployment regime,” he said in an interview last month.

Here’s a rundown of Mr. Diokno’s goals and challenges in the quarters ahead:

VIRUS CONTAINMENT
The global spread of the novel coronavirus is pressuring policy makers, with the OECD warning that the world economy faces its “greatest danger” since the financial crisis more than a decade ago.

Robust domestic consumption means the Philippine economy is less exposed to virus risks than many of its regional peers, but “it doesn’t mean that the Philippines isn’t exposed,” said Eugenia Victorino, Singapore-based head of Asia strategy at Skandinaviska Enskilda Banken AB (SEB).

Tourism is taking a beating amid restrictions on travelers from South Korea and China — the Philippines’ top sources of tourists. Softening demand, as well as worldwide supply disruptions, also could curb investment.

Policy makers reduced the benchmark interest rate by 25 basis points (bps) in early February. Mr. Diokno has said he’s open to cutting the key rate by more than the 50 basis points planned this year if conditions worsen, though he argues that ramping up government spending would do more to boost the economy than monetary easing.

BOND SALES
Bangko Sentral is consulting money-market players over plans to issue its own securities, aiming to begin sales in the third quarter, Mr. Diokno said.

Issuing securities, which was allowed under the central bank charter approved last year, is intended to mop up excess liquidity in the financial system, and should help the central bank better influence market interest rates.

Mr. Diokno also is in charge of:

• an Islamic banking law that aims to boost Shariah-complaint finance in the Philippines;

• a law exempting central bank gold purchases from taxes, allowing the bank to increase the amount of bullion in its reserves; and

• implementing rules on fund transfers and payment settlements amid rapidly changing technology

LAWMAKERS’ SUPPORT
Mr. Diokno wants to put more teeth into the nation’s anti-money laundering law, and ease rules on deposit secrecy.

The Philippines and Lebanon have among the world’s strictest measures ensuring the secrecy of deposits, which critics say could be abused by tax evaders. In the past, it took a near-blacklisting by the Paris-based Financial Action Task Force for the Philippines to change its money-laundering laws.

Drumming up support for these initiatives “will require a deep dive into the political sphere,” said Nicholas Mapa, senior economist at ING Groep NV in Manila.

The need for stricter laws against dirty money was highlighted Friday amid an investigation into possible illicit funds linked to online casinos that mostly cater to Chinese gamblers.

TECHNOLOGY BOOST
The governor also is betting on financial technology and a planned biometric-based national ID to help increase the savings rate to 70% of adults by the time his term ends in 2023, from about 35% in 2017.

“That’s a tall order,” SEB’s Ms. Victorino said. Increased use of digital banking carries risks of cybercrime and could run up against capacity constraints at traditional banks, she said.

The Bangko Sentral also wants to boost the use of digital payments as it seeks to reduce use of cash to 50% of total transactions by 2023, from 80% in 2018.

All in all, it’s an ambitious agenda.

“It seems he’s emphasizing the heart of central banking,” ING’s Mr. Mapa said of Diokno’s priorities. “I think he’ll be able to make do on part of them.” — Bloomberg

More companies studying REIT as funding option

By Denise A. Valdez, Reporter

THE new rules on real estate investment trust (REIT) is starting to attract businesses outside traditional property developers, as operators of toll roads and airports have begun studying the potential of such fund-raising tool.

Metro Pacific Tollways Corp. (MPTC) and Megawide Construction Corp. have both expressed interest in tapping the financial instrument and said they were looking at the possibility of issuing infrastructure REITs.

“We are studying the REITs as possible funding alternative,” MPTC President Rodrigo E. Franco said in a text message over the weekend.

While the company has not made any decision on REITs yet, he said MPTC finds it attractive because it fits the company’s assets. “It allows asset owners to securitize part of the portfolio and, if structured properly, can be a more efficient means of raising funds,” Mr. Franco said.

MPTC is a unit of Metro Pacific Investments Corp. (MPIC) which operates several toll roads in the country, such as the North Luzon Expressway (NLEx), Subic-Clark-Tarlac Expressway (SCTEx) and Manila-Cavite Expressway (CAVITEx).

It is also building the Cavite-Laguna Expressway (CALAx), the Cebu-Cordova Link Expressway (CCLEx) and the NLEx-South Luzon Expressway Connector Road.

REITs require a company to have a recurring income portfolio that investors may put their money into through the purchase of public shares. The new rules of the Securities and Exchange Commission (SEC) require a minimum public float of 33% and a paid-up capital of P300 million for REITs.

MPIC reported last month that the average daily vehicle entry in NLEx, CAVITEx and SCTEx rose 13% to 535,503 in 2019, helping MPTC post an 18% year-on-year increase in core net income to P5.3 billion.

MPIC is one of three key Philippine units of First Pacific, the others being Philex Mining Corp. and PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.

For Megawide, which controls assets such as the Mactan-Cebu International Airport and the Parañaque Integrated Terminal Exchange (PITX), REITs are similarly an attractive financial instrument.

“Our guys are doing a study on REIT for our infra assets like airport and PITX,” Megawide Chairman and Chief Executive Officer Edgar B. Saavedra said in a text message over the weekend.

Megawide has not set a timeline on its REIT plans yet, but Mr. Saavedra said the tool is particularly attractive because REITs are tax efficient.

Compared with regular publicly listed companies, those that are participating in REITs are exempted from value-added tax for the transfer of properties to a REIT vehicle. This rule — which was not the case when the REIT law was passed in 2009 — was among what kept investors from doing REIT offerings in the past 10 years.

Since the SEC issued its new REIT guidelines in January, Ayala Land, Inc. subsidiary AREIT, Inc. has applied to do an offer of shares in three office assets in Makati City to raise up to P1.36 billion.

DoubleDragon Properties Corp. has also previously disclosed a plan to raise about P11 billion annually over the next six years through REITs.

Ayala-led Bank of the Philippine Islands (BPI) said last week it was projecting the Philippines’ market capitalization for REITs to reach $7 11 billion in a few years.

Cebu Pacific senior officials decide to take pay cut

BUDGET carrier describes pay cut as the ‘right thing to do’ amid the impact of coronavirus. — BW FILE PHOTO

By Arjay L. Balinbin, Reporter

SENIOR management officials of Cebu Pacific have decided to take a pay cut as the coronavirus outbreak continues to affect the budget carrier’s operations.

“I can confirm that our senior management [officials] will be taking a pay cut,” Cebu Pacific Director for Corporate Communications Charo L. Lagamon told BusinessWorld in a phone interview on Monday.

Asked by how much, she said: “I’m not privy to the exact details, but suffice to say that it is the right thing to do.”

The move came after flag carrier Philippine Airlines (PAL) announced on Feb. 28 that it had cut about 300 jobs as a way to recover from its 2019 losses, which worsened in the first two months of 2020 due to the coronavirus outbreak.

Both PAL and Cebu Pacific have cancelled flights between China, Hong Kong, Macau, and parts of South Korea amid travel restrictions because of the outbreak.

PAL, operated by PAL Holdings, Inc., said it was “pursuing business restructuring to increase revenues and reduce costs.”

It added that it was hoping that “the streamlining will strengthen the company in the wake of losses sustained in 2019, aggravated by the ongoing travel restrictions and flight suspensions to areas affected by COVID-19 (coronavirus disease 2019).”

To help them recover from the impact of the coronavirus outbreak, Philippine airport authorities on Monday said that payments for take-off, landing and parking would be deferred for local carriers.

The Air Carriers Association of the Philippines, Inc. said last month that it was expecting to issue about P3 billion worth of ticket refunds in the next two months after the Philippine travel ban on China, Hong Kong, Macau and Taiwan.

In a related development, Dubai-based carrier Emirates Airline introduced on Monday a waiver policy for all booked tickets issued on or from March 7 until March 31, 2020. The airline said its intention was to allow its customers to change their travel dates without change and reissuance charges.

“Customers can change their booking to any date for travel within an 11-month date range in the same booking class without change penalties. Difference in fare, if applicable, applies. The policy covers all existing destinations across the Emirates network,” it said.

Chelsea Logistics was not profitable last year, says Dennis Uy

DESPITE a 35% increase in its revenues for 2019, Chelsea Logistics and Infrastructure Holdings Corp. said it failed to achieve profitability in that year, citing the full costing of ships it deployed, expenses it incurred for new vessels and the construction of its new warehouse complex.

“Chelsea was not able to achieve profitability this year due to the full costing of ships (including, but not limited to, depreciation, financing costs, crew costs, insurance and other related costs, both fixed and variable) deployed during the year but whose full revenue potential has yet to be realized as these revenues ramp up,” the Dennis A. Uy-led company said in a disclosure to the stock exchange on Monday.

It added that there were also additional interest expenses incurred for the new vessels and the 2.5-hectare parcel of land that the company had acquired.

The company also cited the construction of a warehouse complex, which will be completed by the third quarter of this year.

Chelsea did not disclose its 2019 net income attributable to parent, but it said it registered P7 billion in revenues, which was 35% higher than the previous year.

To recall, the company had posted a net loss of P550.53 million for 2018, a reversal of the P161.2- million profit in 2017.

Chelsea attributed its growth in 2019 to the shipping and logistics segments of its business.

“In shipping, the passage and freight segments reported strong year-on-year growth figures of 47% and 43%, respectively… In logistics, there was a 60% jump to P459 million compared to P287 million in 2018,” it said.

It said its operating activities generated P9.8 billion last year, which were then invested in new vessels, land and warehouse, delivery trucks and other equipment.

Portions of the cash flows, Chelsea said, were also “used to pay P4.5 billion in maturing debts, both principal and interest, during the year.”

Chelsea said further that its assets grew 27% last year to P41 billion from P32.3 billion.

“Bulk of the increase in assets came from increases in fixed assets due to vessel acquisitions and warehouse construction costs,” it added. — Arjay L. Balinbin

REITs, outsourcing firms seen to drive property market growth

By Denise A. Valdez
Reporter

THE Philippine real estate industry is seen to keep growing this year, driven by the kickoff of real estate investment trusts (REITs), expanding business process outsourcing (BPO) industry and strong consumer demand.

In a statement over the weekend, real estate consultancy firm Santos Knight Frank said several factors may offset the decline in real estate growth brought by the coronavirus disease 2019 (COVID-19) outbreak.

It said 2020 is set to be the “year for REITs,” following the regulator’s relaxation of rules to attract REIT offers from property developers. This includes the reduction of the minimum public float to 33% and the value-added tax exemption when transferring properties to a REIT vehicle.

So far, Ayala Land, Inc. has applied to do an offer of up to 478.64 million shares in office properties in Makati City, which will raise up to P1.36 billion for the company.

“More property companies have expressed interest in REITs after regulators unveiled the revised rules in January. Property giant Ayala Land recently filed its application… while DoubleDragon Properties Corp. is looking at raising P11 billion annually over a six-year period via REITs,” Santos Knight Frank said.

Looking at more mature REIT markets in Asia Pacific such as Australia, Hong Kong, Japan and Singapore, the consultancy firm said these countries have recorded higher dividend yields from REITs compared to listed property companies, which paints a rosy picture for the potential of Philippine REITs as well.

“Santos Knight Frank believes that REITs will unlock a number of opportunities in the property market, such as greater access to real estate investment and revitalization of capital markets,” it said.

Shares in listed property firms have seen a volatile movement in the local bourse, in line with the volatility of global equities due to COVID-19.

But with the launch of REITs, Santos Knight Frank said this opens an opportunity for more participants in the property market.

“REITs have the power to sustain long-term growth for the Philippine economy through investments,” Santos Knight Frank Chairman and Chief Executive Officer Rick M. Santos said in the statement.

“We anticipate that REITs will drive an increase in acquisition, consolidation, and property development activities across the Philippines in the coming years. New capital raised by the developers through REITs will enable expansion of the real estate sector not only in Metro Manila but also in the provinces…,” Santos Knight Frank Associate Director for Investment & Capital Markets Kash Salvador added.

Aside from REITs, the real estate sector is also seeing tailwinds from the continuous growth of the BPO sector. With the government’s moratorium on new economic zones in Metro Manila, Santos Knight Frank said BPOs may start moving to the countryside, driven by the sustained high demand from locators.

“From 1.23 million direct hires as of 2018, the entire Philippine BPO industry is expected to support up to 1.57 million by 2022. Santos Knight Frank estimates that the growth of 7% CAGR would, in total, require an estimated office space of 1.2 million square meters for the 260,000 new jobs generated,” it said.

The co-working trend is another element that may keep the real estate sector growing, as the consultancy firm said high demand from freelancers, start-ups, entrepreneurs and BPOs continue attracting new co-working space brands into the country.

The rise of sustainable buildings is also a growth driver for the sector, as Santos Knight Frank said there is a 12.5% higher lease rate in buildings that are Leadership in Energy and Environmental Design (LEED)-certified compared to those that aren’t.

“As the real industry becomes increasingly aware of its environmental impact, more property owners are turning to green design, solutions, and systems… LEED-certified buildings not only carry environmental benefits, but they also position properties to the premium side,” it said.

Industrial and logistics sectors are likewise seen to further expand this year, fueled by the demand from the e-commerce market. “The areas of Calabarzon and the corridor (of expressways) in North Luzon are prime spots for logistics and industrial real estate to grow. These would be the next hubs for distribution centers and warehouses,” Mr. Salvador said.

In terms of residential spaces, Manila is likely to sustain its dominance, as the consultancy firm said there are three projects scheduled to launch in the first quarter of 2020 alone: The Velaris Residences, Sonora Garden Residences and Avida Towers Parklinks.

“The growth in the prime residential market in Manila is driven by a tight supply of luxury and high-end properties, increasing number of Filipino ultra-high net worth individuals, and demand from foreign buyers,” Santos Knight Frank said.

Co-living spaces are likewise going to push the growth of real estate, as big property developers continue investing in this segment.

“The beginning of 2020 has been marked by a series of unexpected events that continue to affect the global economy. Despite the impact of COVID-19 and downturn in international stock markets, the Philippine real estate industry continues to have reasons to be optimistic,” it said.

Asia airports face $3-billion revenue loss in first quarter

AIR TRAFFIC in the Asia Pacific is set to plunge 24% in the first three months of this year because of the coronavirus’s impact on travel, erasing $3 billion in revenue for the region’s airports, a regional industry group said.

“Unlike airlines, who can choose to cancel flights or relocate their aircraft to other markets to reduce operating costs, airport operators manage immovable assets that cannot be closed down,” Stefano Baronci, director at Airports Council International Asia Pacific, said in a statement Monday. “They are faced with immediate cash flow pressures with limited ability to reduce fixed costs and few resources to fund capacity expansion efforts.”

Airlines across the world are slashing capacity, asking staff to take unpaid leave and grounding jets as demand sinks because of concern about the coronavirus, which has killed more than 3,800 people and infected over 109,000. Publicly listed airport service providers in Asia have slumped more than 12% this year, data compiled by Bloomberg show, while the International Air Transport Association warned of revenue losses of as much as $113 billion for airlines globally in 2020.

The slump in travel also means reduced landing and parking fees that airports charge airlines, ACI said. The gateways are facing lower numbers of Chinese travelers, the world’s biggest and highest-spending outbound tour group, according to ACI.

The group also cautioned against IATA’s request for regulators to suspend rules that require carriers to operate a certain number of flights from allocated slots or lose them. Such a move would give airlines the freedom to cancel flights at congested airports not necessarily linked to the coronavirus outbreak, hurting local economies, it said. — Bloomberg

Balintawak condo set for turnover by Oct. 2021

DMCI PROJECT Developers, Inc. is on track to turn over units at The Celandine to homeowners by October 2021.

Construction of the 47-storey building has reached the 26th floor as of February, said the company which operates under the DMCI Homes brand.

The Celandine is expected to be topped off by September.

“The company’s Construction, Design and Engineering, and Quality Management departments are working hand in hand to ensure that the company’s 102-point inspection system initiative is strictly implemented in the construction of The Celandine,” DMCI said.

The quality checklist covers the inspection of the soil quality, compliance to standard building requirements, and testing of the concrete’s strength. It also includes a close examination of the physical measurements of the layout, types of materials to be used, as well as the plumbing, sanitary, electrical, and mechanical systems.

The Celandine is located along A.Bonifacio Avenue, Balintawak, Quezon City. It is expected to benefit once the Skyway Stage 3 extension begins operations. The Skyway Stage 3 starts from A. Bonifacio Avenue to Gil Puyat Avenue (Buendia) in Makati City.

Among The Celandine’s amenities are a linear park and themed gardens, roof garden, open lawn with grill pit areas, jogging trail, playground, swimming pool complex, basketball court, gazebo, and fitness gym.

Indoor amenities include lounge areas, audiovisual room, function room, game area and sky lounge.

DMCI Homes is a Quadruple A real estate company behind resort-inspired communities in Mega Manila, Baguio, Boracay and Davao City.

Even virtual goods from China are taking a hit from coronavirus

THE coronavirus epidemic in China cast the production of the world’s electronics into disarray. What’s less well known is that it also disrupted the global supply of digital goods for games.

Beyond iPhones, laptops and consoles, China is also the largest production base for digital art in mobile, PC, and console games. Global developers from Activision Blizzard Inc. to Ubisoft Entertainment rely on third-party studios in the country for a huge chunk of their art, enticed by the same cheap-but-capable labor force that draws manufacturing orders from Apple Inc. and Nike Inc.

Art suppliers across gaming hubs in Shanghai and Chengdu are failing to deliver costumes, armor, and other digital assets on time, because designers were barred from studios by strict quarantine rules — a major impediment in a line of work that requires stringent data security and networks of high-powered workstations. That’s forced gaming companies to reduce or cancel orders, according to people inside the industry, and scout for alternatives in Southeast Asia and Europe to take up the slack.

Jefferies analysts led by Ken Rumph estimate that as much as 50% of art creation in Western games is done in China, either by local outposts of major developers like Ubisoft and Electronic Arts Inc. or by outsourcing. “If delays are extensive, we would expect a growing list of game delays,” they wrote in a February note.

While the full scale of this disruption is yet to be defined, the games industry is already taking hits from its China reliance. The American developer of popular sci-fi role-playing title The Outer Worlds said in February it had to delay the release of the Nintendo Switch version — after the China-based studio it hired to adapt the game paused operations during the virus outbreak.

“We redid all the planning for all our projects,” said Philippe Angely, a senior executive with Virtuos Ltd., whose China team is handling The Outer Worlds’ Switch adaptation. With 1,200 developers across the cities of Shanghai, Chengdu and Xi’an, Virtuos estimates an average of a two-week delay on projects, he said, and a halving of February revenue as a result.

Virtuos, whose clients include Ubisoft, Square Enix Holdings Co., and Tencent Holdings Ltd.’s Riot Games, has only just gotten back to full capacity in the past few days, but it remains hampered by local restrictions. Its 600 staffers in Chengdu, for instance, have to rotate across two eight-hour shifts to comply with government-imposed limits on the number of people in indoor areas.

The online games industry has been among the few beneficiaries of the coronavirus outbreak, as time and money spent on games have surged with millions of people confined to their homes. But the tale is different from the supply side.

“Developers and publishers can make revenue as long as they have games running. For outsourcing companies, we have to work every day so clients will send money to our bank accounts,” said Zhang Jian, executive vice-president with Chengdu-based Sheer, which has worked with clients including Tencent, NetEase Inc. and Ubisoft.

To prevent infection and keep business running at the same time, Sheer has relocated half of its 300 developers to a new office floor the company just rented, Zhang said. Employees are required to sit at every other desk and wear face masks throughout the day. Yet about half a dozen of his company’s projects — both Chinese and foreign — have been scaled back or canceled entirely. The studio, which provides services from concept art to 3-D environment creation and character animation, won’t be able to take new orders until the end of March, Zhang said.

“The impact on the cash flow will last for the full year,” he said. “We are not in big danger, but we’ll feel a lot safer if we have money on the books.”

Unlike supply chains for physical goods, migrating a digital one away from China can be done relatively swiftly. Last year, Ubisoft opened a new studio in Vietnam while Sony unveiled plans to build a Malaysia outpost to make games for its PlayStation consoles. Such moves help global companies tap even cheaper local talent and reduce the risk of regional disruptions like the coronavirus, said Darang S. Candra, a Jakarta-based analyst with game researcher Niko Partners.

In Southeast Asia, Vietnam’s Appota, Malaysia’s Streamline Studios and Thailand’s Asiasoft are examples of studios capable of potentially taking orders away from China, he added.

“For games that are targeting the Chinese market, we expect no exodus to happen any time soon,” Candra said. “Nevertheless, some outsourcing work might move outside of China if the situation does not recover soon.” — Bloomberg

Gov’t makes full award of T-bills as rates mostly drop on demand

THE GOVERNMENT fully awarded the P20 billion in Treasury bills (T-bills) it auctioned off on Monday as rates mostly continue to decline on expectations of monetary easing and investors’ flight to safe havens due to the coronavirus disease 2019 (COVID-19) outbreak.

The Bureau of the Treasury (BTr) accepted bids worth P20 billion as planned for the T-bills on offer yesterday as the offer was almost thrice oversubscribed, with total tenders reaching P53 billion

Broken down, the Treasury made a full P6-billion award of the 91-day T-bills out of total bids worth P10.15 billion. The three-month papers fetched an average rate of 3.024%, inching up by one basis point (bp) from the 3.013% seen in the auction last week.

The BTr raised another P6 billion as programmed via the 182-day T-bills from bids worth P12.193 billion. The average rate for the six-month papers inched down 1.2 bps to 3.312% against the 3.324% quoted previously.

For the 364-day papers, the government also made a full award of its P8-billion offer as total tenders amounted to P30.68 billion. The one-year securities fetched an average rate of 3.588%, down by 9.6 bps versus 3.684% seen in the previous offering.

At the secondary market on Monday, the 91-, 182- and 364-day T-bills fetched rates of 3.062%, 3.364% and 3.713%, respectively.

Following the auction, National Treasurer Rosalia V. de Leon said they made a full award of the T-bill offer yesterday amid mostly lower rates, which were driven by market expectations of a 25-bp cut by the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board at its rate-setting meeting on March 19.

“For this auction…coming from the liquidity onshore, we have very significant participation particularly on the one-year tenor given that there would be a yield pickup coming from the short end… We also saw that rates continue to trend downward given the expectations of another rate cut by the BSP coming from the emergency cut made by the Fed (US Federal Reserve) last week,” Ms. De Leon told reporters on Monday.

The central bank’s policy-setting Monetary Board (MB) already cut key rates by 25 bps at its Feb. 6 meeting, bringing the yields on the BSP’s reverse repurchase, overnight deposit and lending facilities to 3.75%, 3.25% and 4.25%, respectively.

This means the BSP has already unwound 100 bps from the 175 bps worth of rate hikes done in 2018 to quell multi-year high inflation.

BSP Governor Benjamin E. Diokno said last week another 25-bp cut is on the table this year, adding that they will assess anew the impact of the virus on the economy during the MB’s March 19 meeting. He earlier said the central bank is not ruling out cuts worth 50 to 75 bps this year.

Sought for comment, a bond trader attributed the lower T-bill rates to investors’ flight to safer assets like government securities as COVID-19 continues to spread and its potential impact on the economy seen to rise.

“Demand (is still robust) since investors prefer securities with shorter tenor amid coronavirus outbreak, especially here in the Philippines. For the next auction, we feel that this will continue to decline since investors continue to prefer safer securities across all tenors,” the trader said over telephone.

Ms. De Leon and the trader both said the downtrend will continue as the damaging impact of the virus persists, which can also be observed in US Treasury market where rates have declined to less than one-percent levels across all tenors. The 10-year and 30-year Treasuries plunged to 0.35% and 0.72%, respectively, on Monday, according to Bloomberg’s website.

Ms. De Leon added that the lower rates were also driven by plunging oil prices in the global market. The Brent crude declined 26% to $33.46 per barrel on Monday, “set for their biggest one-day decline in 29 years,” according to Reuters.

Reports attributed the decline to the “price war” that started in the global market after Saudi Arabia, one of the largest oil-producing country, slashed its official selling prices and announced plans to increase production next month, after the Organization of the Petroleum Exporting Countries failed to come up with a consensus on proposed output cut.

Demand for oil has been declining recently on subdued economic activity due to travel bans and other precautionary measures imposed by several countries to contain the spread of COVID-19. This drove oil prices to drop.

The Treasury has set a P420-billion local borrowing program this quarter, broken down into P240 billion in T-bills and P180 billion via Treasury bonds.

The government plans to raise P1.4 trillion this year from local and foreign lenders to plug its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga with Reuters

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