S&P warns PH of possible downgrade

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The Philippine government may lose the “investment grade” rating it worked so hard to achieve if a debt default by one of the country’s handful of major conglomerates should erode investor confidence.

In a report released Friday, debt watcher Standard & Poor’s (S&P) said that while the Philippines remained one of the strongest markets in the region, the structure of the country’s economy—being dependent on family-owned conglomerates—was a source of vulnerability.

“We may… lower the ratings if problems at one of the large conglomerates impair investor confidence,” S&P said in a supplementary analysis report on the Philippines. S&P rates the Philippine government’s long-term debt at the minimum “investment grade” with a stable outlook, a reflection of the stability of the local economy.

S&P became the second major rating firm to give the Philippines an “investment grade” rating after Fitch Ratings. Moody’s Investor Service still considers Philippine government debt as “junk” investments, although the country is on positive watch for a possible upgrade.

Other risks that threaten the country’s “investment grade” status include the possible spillover of weak global economic conditions that could affect the domestic economy.

S&P’s concerns over banks’ exposure to conglomerates echoed the International Monetary Fund’s own assessment of the structure of the Philippine economy. The IMF said in its April country report that a default by any major, highly leveraged conglomerate could lead to a significant increase in bad assets held by lenders. This, in turn, could lead to banks restricting lending to other sectors of the economy.

The IMF and S&P did not name any specific conglomerate in particular. In contrast, the BSP had said that its period stress tests showed that even if all major conglomerates defaulted on half of their loans, local banks were strong enough to absorb these losses without affecting their operations.

S&P also raised concerns over the Bangko Sentral ng Pilipinas’ (BSP) ability to manage capital flows from abroad that could cause overheating in the economy and create asset price bubbles.

“Low level of bank intermediation and underdeveloped capital markets constrain the effectiveness of monetary policy transmission,” S&P said in its report. It said the BSP’s main focus, given low inflation in the first half of the year, had become managing capital flows to prevent potential bubbles. “Ample domestic liquidity is giving rise to concerns over overheating in the property sector and banks’ exposure to it, in particular via related lending,” S&P said.

The rating firm, however, recognized efforts by the central bank to curb this risk by limiting loans and guarantees between property companies and their parent conglomerates.

Political developments that could throw the Aquino administration off its current course of promoting good governance and fiscal stability could also lead to a downgrade, S&P said.

One of the upside, S&P said the Philippines could earn another upgrade if revenue reforms that facilitate improvements in infrastructure and human capital would be passed.

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Forex reserves climb to $82.9 B

 

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By Prinz P. Magtulis (The Philippine Star) | Updated August 8, 2013 – 12:00am

 

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MANILA, Philippines – The country’s foreign exchange reserves climbed in July after three straight months of decline on higher gold prices and continued inflow of dollars, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Citing preliminary data, BSP Governor Amando M. Tetangco Jr. said the country’s gross international reserves (GIR) rose 2.08 percent to $82.942 billion in July from $81.255 billion in June.

The latest figure was a recovery from a 10-month low in June, but still below the record-high of $85.274 billion recorded in January this year.

“The increase was due to BSP’s foreign exchange operations and some revaluation gains at least for last month,” Tetangco told reporters on the sidelines of a budget briefing in Congress.

According to the central bank, reserves are now good to meet one year of imports of goods and services. They are also equivalent to 8.5 times the country’s short-term debt based on original maturity and 5.8 times on residual maturity.

Broken down, gold holdings posted the highest increase of 7.27 percent after it slumped to a two-year low the previous month. As of July, the value of gold reserves totaled $8.221 billion.

his was followed by foreign investments, where the bulk of the GIR is placed. A total of $71.760 billion were invested offshore, 1.58 percent up from end-June’s $70.645 billion.

Foreign exchange coffers – composed mainly of major currencies such as the dollar, euro and Japanese yen – inched up 0.84 percent to $1.155 billion for the first seven months.

Tetangco said the BSP’s foreign exchange was boosted by “foreign currency deposits from the Treasurer of the Philippines” as well as the “revaluation” of current holdings, primarily to account for stronger foreign currencies.

“These inflows were partially offset by the payments for maturing foreign exchange obligations of the national government,” he explained.

GIR is also composed of special drawing rights (SDR) – the currency used by the International Monetary Fund – as well as those funds actually lent to the multilateral agency.

Based on official figures, SDR holdings kept steady as of July at $1.261 billion, but the amount with the IMF increased 0.9 percent to $545.01 million.

Higher revenues, lower costs buoy PLDT

Posted on August 07, 2013 10:55:34 PM | MANILA, PHILIPPINES
PHILIPPINE Long Distance Telephone Co. (PLDT) grew profit by more than a tenth in the first quarter, boosted by an increase in revenues and lower expenses, according to a statement attached to a disclosure yesterday.
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The telecommunication firm’s net income grew 13% to P10.5 billion in the first quarter from P9.3 billion in the same three months last year, as revenues rose 4% to P42.1 billion from P40.4 billion and expenses dipped 2% to P30.2 billion from P30.6 billion, according to unaudited consolidated income statements attached to the press release. In the same comparative three-month periods, core net income — which strips out one-time gains and costs — grew 6% to P9.8 billion from P9.2 billion.

Second-quarter performance brought net income to P19.7 billion in the first half, 2% more than the previous year’s P19.3 billion.

PLDT explained in its statement that the rise in net income in the first half was “a result of the combined impact of higher core income, gain from the sale of the BPO (business process outsourcing) business, higher foreign exchange and derivative losses and the retroactive effect” of new accounting standards that required recognition in the first half of personnel termination benefits under a manpower reduction program implemented late last year.

PLDT noted particularly that fixed-line service revenues grew 3% annually to P26.5 billion in the first half. “Twenty-thirteen is proving to be an exciting year for the fixed-line business, especially with the launch of our first true triple-play service, Cignal over Fibr…” PLDT and Smart Communications, Inc. President and Chief Executive Officer Napoleon L. Nazareno said in the statement, describing the system in which PLDT provides landline and high-speed broadband access while Cignal provides television and content. “This only goes to show that while our legacy businesses continue to be challenged, we are compensating by building other revenue sources by capitalizing on network and content strengths.”

The statement quoted PLDT Chairman Manuel V. Pangilinan as saying: “It is encouraging that we are beginning to show signs of growth… I believe we’re beginning to see the combined impact of multimedia and the Internet on our mainstream telco business.”

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a minority stake in BusinessWorld. PLDT shares gained P4 or 0.13% to P3,084 each yesterday.