Firms rush to borrow before rates go up

MANILA, Philippines – Companies are rushing to raise capital, with inflation ticking up and interest rates expected to follow suit.

Up to P140 billion worth of debt deals are now being arranged by First Metro Investment Corporation (FMIC), the investment and banking unit of the Metrobank group of companies, FMIC vice president Justin Ocampo said in a press briefing on Monday, January 6.

Ocampo said at least P50 billion corporate bonds will be issued by publicly listed companies in the first quarter. Three power generation companies are also eyeing P60 billion worth of bank borrowings in the first half.

“For 2014, there will be a healthy pipeline of bond issuances as corporations are expected to accelerate plans to tap by the bond market to fund their requirements before possible interest rate hike,” Ocampo said.

Analysts are expecting interest rates to go up this year due to rising inflation.

Inflation, or the increase in the prices of goods and services, is one of the factors the Bangko Sentral ng Pilipinas (BSP) looks at when it sets its key policy rates, which influence the rates that local banks charge on their loans.

Low interest rates encourage consumers to borrow more, fueling their spending. When consumers spend more, the economy grows, creating inflation.

To rein in inflation, the central bank raises interest rates to control the amount of cash that enters the economy. This is because high prices also discourage people to spend, which can weigh on growth. The central bank ensures a healthy balance.

BSP Governor Amando Tetangco earlier told reporters the inflation rate for December likely stood at 3.8% to 4.7%, an all-time high for the year.

The increase was due to higher prices of electricity and fuel as well as supply constraints brought about by massive agriculture losses from Super Typhoon Yolanda (Haiyan).

Bonds

Among the listed companies with pending applications with corporate regulators to issue bonds are JG Summit Holdings Inc. (P30 billion), Philippine Long Distance Telephone Company (P15 billion), ABS-CBN Corporation (P10 billion) and Filinvest Development Corporation (P10 billion).

In 2013, a total of P85 billion worth of bonds were issued by several listed firms, with nearly half of the issuances launched in the last quarter. The companies that tapped the bond market in 2013 include Aboitiz Equity Ventures, Manila Electric Company, Rockwell Land Inc., Filinvest Land Inc. and Ayala Land Inc.

Ocampo said several companies engaged in property and retail sectors are also looking to raise capital by listing on the Philippine Stock Exchange. The deals can be worth P15 billion to P30 billion.

However, while companies are eyeing to raise money through stocks, Ocampo said this will be opportunistic and selective as valuations had gone down from previous year’s level.

Meanwhile, power generation and infrastructure companies are looking to raise funds through bank borrowings to finance their expansion plans, said Ocampo. – Rappler.com