PH corporate debt rising fastest in Asean, says S&P

MANILA – Philippines companies racked up debt faster than their Asean peers in the last seven years.

In a report released today, Standard and Poor’s (S&P) said 17 of the Philippines’ biggest companies nearly tripled their debt holdings between 2008 and the first quarter of 2014.

Largely spared the worst of the Asian and global financial crises because of their relatively low leverage, Philippine companies have taken on increasing debt amid low interest rates and more than ample domestic liquidity.

Up until the second quarter of this year, money supply growth hovered above 30 percent. The Bangko Sentral ng Pilipinas (BSP) however has been tightening its monetary policy since the start of the year.

Earlier, the operator of the Philippines’ fixed-exchange trading platform said bond sales would hit a record this year after listing reached an all-time high in the first semester. In the second quarter, issuances however slowed amid fears of rising interest rates brought about by the US Federal Reserve’s taper.

According to S&P, the median ratio of net debt to EBITDA rose to 3.5 times at end-2013 from 1.9 times at end-2008. This is the highest in Asean, as revenue and cash flow among the rated Philippine companies failed to keep up with the increase in their combined liabilities.

EBITDA refers to earnings before interest, tax, depreciation and amortization expense, and as such is a proxy for cash flow.

While revenue growth among the Philippine firms was “sound” compared with their Asean peers, median growth nearly halved to 8 percent last year from a peak of 17 percent in 2010 “because of increasing competition and greater capacity across industry sectors,” S&P said.

“We expect credit quality to decline further over the next 12 months. We see no sign of a slowdown in spending as Philippine companies continue to invest,” said S&P credit analyst Xavier Jean.

The heavy borrowers incurred more debt mostly to grow their businesses, to acquire other companies, or to honor their dividend commitments with shareholders, S&P said.

“Investment remains geared toward organic growth, but we expect merger and acquisitions to pick up in the country in the next one to two years as large and profitable domestic investment opportunities become more difficult to find,” Jean said, adding that the itch to pursue M&A would be greater among big conglomerates.

“Domestic conglomerates generally have a wide access to debt markets to fund their growth. They also have more strategic growth options available because of their broad range of operations,” Jean said.

Less than a third of the Philippine companies had huge debt loads, while a fourth showed “conservative balance sheets with moderate to low debt levels,” according to S&P. –InterAksyon