Alerts

   Adrian Alexander Yu

The PCC is commencing its Phase 2 review on SMC’s US$2.15Bil acquisition on HLCM. In particular, the second-level review will look closer into whether there will be an increased likelihood of cartel-like coordination among cement firms. The PCC has 60 calendar days from August 23 to complete this review. Meanwhile, the PCC’s phase 1 review concluded that the transaction might affect competition in some markets for grey cement, clinker, and ready-mix-concrete, among others. However, the PCC also noted that given the low product differentiation of cement, retailers and consumers in various regions would be affected differently with regard to production, distribution, and pricing.

   John Martin Luciano, CFA

BDO is planning to issue Php5Bil worth of long-term negotiable certificates of deposit (LTNCD) in order to diversify the maturity profile of its funding sources as well as support its expansion plans. These will carry a term of five-and-a-half years and an indicative rate of 3.75% which will be paid quarterly. The final coupon rate will be set at the end of the offer period which will run from September 10 to 20.

   Adrian Alexander Yu

Fiber internet company Converge ICT Solution disclosed that the company raised US$250Mil or Php12.8Bil from US-based private equity firm, Walburg Pincus. According to Converge ICT founder and president Dennis Anthony H. Uy, the fresh funds would help Converge roll out infrastructure as it aims to capture 30% of the country’s brand market. The fund raised would help finance Converge’s plan to build a US$1.8Bil nationwide internet backbone. For future funding, Uy noted that he has commitments from local banks to raise another US$800Mil. The current rollout includes a US$70Mil domestic submarine cable with 20 landing stations across the Philippines. Uy noted that the Luzon backbone is expected to be completed by the first quarter of 2020.

   Adrian Alexander Yu

Preliminary data from the PSA showed that exports grew by 3.5% y/y in July 2019 to US$6.2Bil. This is slightly ahead of the 1.9% growth forecast of consensus. The growth in exports for the period was amid an increase in eight out of the top ten exported commodities for the month, led by Gold (+81.8%). Meanwhile, export of electronic products increased by 2.9% y/y for the said month. Note that electronic products accounted for majority of the total export bill in July at 55.6%. Top markets for exports during the period were USA (16.9%), Japan (15.4%), and China (14.0%).

   Adrian Alexander Yu

Based on preliminary data from the PSA, imported goods in July 2019 declined 4.2% y/y to US$9.6Bil. This is a lower decline compared to the -5.0% forecast of consensus. The decline in imports was led by the decrease in five of the top ten imported commodities for the month, with Iron and Steel (-35.8%) dropping the most. Imports for electronic products only grew by 1.2% y/y, and this accounted for the biggest share of the total import bill at 25.7%. Top markets for imports during the period were China (23.0%), Japan (9.6%), and Korea (8.3%). With exports growing by 3.5% y/y and imports declining by 4.2%, the country posted a narrower trade deficit of US$3.4Bil in July versus the US$4.0Bil deficit in the same month during 2018.

   Adrian Alexander Yu

3 economic reforms gained the approval of the House of representatives. 1) The removal of restricting foreigners to practice their professions in the Philippines was approved on the final reading. The bill allows more expertise from people abroad to be shared locally. 2) Approved on its final reading, the bill to simplify taxes on financial instruments will cut the income tax rate on interest, dividends, and capital gains to 15% from the current range of 0-30%. The stock transaction tax will also be reduced to 0.1%, imposition of 0.1% transaction tax on debt instruments and the removal of taxes on IPOs, among others. 3) The bill to lower corporate income taxes to 20% by 2029 was approved on its 2nd reading. The bill aims to remove some redundant tax benefits.

   Adrian Alexander Yu

Fruitas said that it has filed a registration statement with the Securities and Exchange Commission (SEC) for its initial public offering. The company is looking to raise up to Php1.2Bil from the sale of up to 533.66Mil common shares, plus an over-allotment option of up to 68.34Mil common shares at a maximum price of Php1.99/sh. The proceeds will be used to fund its store network expansion across the country. Fruitas plans to list before the end of the year with the offer period planned to run from November 18 to 22.

   John Martin Luciano, CFA

Gross international reserves increased to US$85.6Bil as of end-August 2019 from US$85.2Bil in the previous month. The higher reserves were driven by the government's net foreign currency deposits and the BSP’s income from its investments abroad. However, the increase was partially tempered by payments made by the government for servicing its foreign exchange obligations. According to the BSP, the dollar reserves serve as an ample external liquidity buffer and are equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income. They are also equivalent to 5.2X the country’s short-term external debt based on original maturity and 3.8X based on residual maturity.

   John Martin Luciano, CFA

Infrastructure spending and other capital outlays have seen a month-on-month improvement as disbursements started to normalize and accelerate in 2H19. In fact, this figure surged 73% to Php75Bil in July compared to the June 2019 disbursement. However, infrastructure spending was still 11% lower compared to the Php85bil spent in the same month last year. The government continued to attribute this to the lingering effects of the delay in the passage of the 2019 budget and the 45-day public works election ban. Nevertheless, the government expects spending to improve further in succeeding months amidst several projects of the DPWH (Department of Public Works and Highways) and DOTr (Department of Transportation) that are underway.

   John Martin Luciano, CFA

August inflation further slowed down to 1.7% as compared to July's 2.4% and the expected 1.8%. The result is the lowest rate in nearly 3 years which gives more room for the central bank to further ease monetary policies.