* San Miguel looks to local market to replace US dollar debt
* More bond issuers expected to follow to reduce currency
* Company treasurers act before possible rise in Philippine
By Krishna Merchant
SINGAPORE, Feb 20 (IFR) - Philippine companies are expected
to issue more local currency bonds to retail investors to reduce
their dollar debt and trim currency risk, led by one of the
country's largest conglomerates.
San Miguel Corporation, which has interests in
beverages, food, energy and infrastructure, is eyeing more peso
bonds to reduce its dependence on dollar borrowings.
“We plan to replace dollar-denominated debt with fixed-rate peso
bonds to the extent that we can,” a San Miguel spokesperson said
The conglomerate is targeting proceeds of 15 billion pesos ($300
million) from the sale of fixed-rate peso bonds with tenors of
five, seven and 10 years, with an oversubscription option of 5
The proceeds will be used to partially refinance loans San
Miguel took from various local banks to prepay a portion of its
US dollar debt, according to PhilRatings. The rating agency has
assigned a Aaa rating to the bonds.
The Securities and Exchange Commission has granted San
Miguel a shelf registration to issue 60 billion pesos of
fixed-rate bonds, meaning that it could come back for further
The dollar-denominated debt on San Miguel's book is 35
percent of its consolidated debt, a decline of around 10 percent
in the first nine months of fiscal year 2017. This is a result
of the company's efforts to reduce exposure to dollar debt and
reduce the effects of currency volatility.
The Philippine peso depreciated five percent against the
dollar to 49.5 in 2016. Nomura expects it to fall to 50.2 by the
end of March.
Other Philippine companies that do not have a natural dollar
hedge from earnings are also turning to onshore debt.
"Greater access to onshore funding at a lower cost is
causing companies to look more closely at raising peso debt to
replace their dollar borrowings, unless their assets and
revenues are in dollars," said Teresa Kong, portfolio manager at
Philippine companies seem to be timing the market as most
economists expect Bangko Sentral ng Pilipinas (BSP) to raise
interest rates this year. Most of the companies are issuing
fixed-rate peso bonds because "the CFOs are just being cautious
and defensive ahead of the Fed move", said Paolo Magpale, a
treasurer at BDO Private Bank.
The US Federal Reserve is expected to raise rates two to three
times this year. Besides global uncertainties, there is upward
pressure on local yields, since BSP is likely to be the only
Asian central bank to raise rates this year, according to
"We are expecting a 50 basis points rate hike this year on the
premise that headline inflation will rise sharply," said Lavanya
Venkateswaran, vice president and economist for South-East Asia
Headline inflation edged up to 2.7 percent year on year in
January, and is expected to rise on account of electricity
tariff adjustments, higher global oil prices and strong core
inflation led by robust domestic growth. Nomura expects it to
average 3.3 percent this year and said Philippine GDP could grow
by even more than its forecast of 6.3 percent for 2017.
Higher government spending, growing remittances from overseas
foreign workers and growth in the business process outsourcing
sector are all ensuring ample liquidity in the Philippine bond
market, said a San Miguel spokesperson.
Overseas remittances hit $29.7 billion in 2016, up five percent
from a year ago, according to BSP data.
Surplus liquidity is incentivising retail investors to buy peso
bonds. "Retail investors are getting higher returns from
investing in fixed-rate bonds compared to the current rate of
inflation," said Magpale from BDO Private Bank. The returns are
at least 200 basis points more than the current rate of
While local investors are bullish on onshore bonds, foreign
investors have turned cautious, bearing in mind the currency
risk and outlook for central bank policy.
"The Philippines interest rate cycle is quite correlated
with that of the US," said Kong at Matthews Asia. "For all these
reasons, local bonds might have more downside than upside."
(Reporting by Krishna Merchant; Editing by Daniel Stanton and