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MANILA: For sale: assets of a debt-swamped power firm losing
$5 million a day in a country dogged by corruption,
political instability, and regulatory uncertainty.
Time-wasters need not apply because the Philippines could
hit a power crisis within three years and the government is
keen to pare back its debilitating $3.6 billion budget
deficit.
Analysts say there is no more important task for the next
Philippine administration, but potential buyers of
state-owned National Power Corp’s (Napocor) generation and
transmission assets are not exactly breaking down the door.
“The power sector is a microcosm of what’s ailing the
country,” said a former senior Napocor official, who is
sceptical about the chance of a successful sale without
deeper reforms.
“If you can’t reform the power sector, how can you reform
the country?”
Experts say there are profits to be made, but that is being
outweighed by familiar concerns about regulatory and
political uncertainty, highlighted by the squabbling in
Congress that is holding up the counting of votes from May
10 elections.
Filipinos and foreign investors are still waiting to see
whether President Gloria Macapagal Arroyo, a US-trained
economist, or movie hero Fernando Poe Jr will win.
The privatisation of Napocor’s transmission assets, valued
by the government at $2 billion, was meant to go through
last year, but stalled on a lack of interest. It has sold
off only tiny chunks of its generating capacity, also priced
at $2 billion, which accounts for three-quarters of national
capacity.
Even if the government drops its price, which many analysts
think it must, interested firms such as Singapore Power —
the only bidder for the transmission assets last year — will
be wary.
Investor graveyard: In 2001, the Supreme Court ordered
Singapore’s Keppel Group to turn over a shipyard it had
renovated and been operating for seven years in the northern
Philippines to a rival.
A brand new airport in Manila is standing idle after
Arroyo’s government tore up a contract that German airport
operator Fraport AG signed with the previous government.
“Definitely, government needs to address that and revive
investors’ confidence in the sanctity of contract in
particular,” said Patrick Giraud, director of Southeast Asia
infrastructure at the Manila-based Asian Development Bank.
More buying interest for Napocor assets should emerge if, as
expected, Arroyo is declared the winner by June 30, he said.
But with power firms enjoying a strong global market as
demand from China tightens energy supply, others question
why foreign providers would risk a major foray in the
Philippines without more deep-seated reforms or firesale
prices.
The government has much to gain by jettisoning Napocor,
whose losses and debts have rocketed since the 1997 Asian
economic crisis caused a crash in power demand and the
peso’s value.
The IMF has warned that Napocor’s losses, to be funded by
$1.5 billion in sovereign-guaranteed bonds this year, are
keeping the Philippines stuck in its twin deficit and debt
traps. Government debt was 77 percent of GDP at the end of
2003 but public debt, which includes Napocor, was a huge 128
percent.
Earlier this week, Arroyo’s spokesman said the government
had decided to “bite the bullet” and assume all 500 billion
pesos of Napocor debt, up from 200 billion previously
planned, in an apparent bid to speed its sale.
Some estimates put its debt at 600 billion pesos or higher.
Mixed signals: The next day, however, the Supreme Court
underscored investor concerns by blocking a plan by the
biggest electricity distributor, Manila Electric Co, to
raise rates by two percent. Consumer groups had campaigned
against it.
“Incredible, incredible,” said Peter Wallace, president of
the Manila-based Wallace Business Forum consultancy. “It
(the court) thinks it understands economics and business but
it doesn’t at all. This is coming through clearer and
clearer.”
Filipinos, among the poorest people in Asia, are angry that
they have some of the region’s highest power rates, a legacy
of the early 1990s when widespread black-outs prompted the
desperate government to guarantee attractive returns for
independent power firms.
“Now it looks like they are repeating the same mistake,
leaving it to the last minute and having to give away more
than they should. It’s very depressing,” said Wallace.
The government, whose limits on power prices are partly to
blame for Napocor’s woes, would need courage to allow prices
to rise. But Wallace and others say that with demand set to
outstrip capacity in the next few years, consumers will
either have to pay more to attract investment or face a
rerun of the early 1990s. —Reuters
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$170-M proceeds to be used to fund phase two
By LEILANI M. GALLARDO, Senior Reporter
The Metro Rail Transit Corp. (MRTC) plans to list $1.74
million of Metro Rail Transit 3 (MRT-3) debt papers at the
Luxembourg Stock Exchange by the end of the year in a bid to
raise some $170 million in fresh funds to partly finance the
second phase of its railway project
In an interview with reporters, Fil-Estate Land Corp.
Chairman Robert John L. Sobrepeña said the MRTC is looking for
an arranger or underwriter for the bonds. Fil-Estate Land Corp.
is one of the principal investors in the MRTC consortium whose
members include Ayala Land, Inc., Anglo-Philippine Holdings,
Inc. Ramcar Greenfield Development Corp., Allante Realty Corp.
and DBH, Inc.
"At this point we are looking forward to an international
listing of the MRT bonds probably at the Luxembourg exchange
hopefully within a period of six to nine months. There's a
chance it might happen within the year or early next year," he
said.
The MRT bonds were issued last year and are backed by future
dividends from the railway line aside from rentals of the
Department of Transportation and Communications under a
build-lease-transfer agreement.
"The amount that we will raise from the bonds will basically
fund Phase 2. That will be the equity portion of Phase 2. We're
looking at a range of proceeds anywhere between $150 million to
$170 million," he said.
Mr. Sobrepeña said the MRT III consortium is confident that
it will be awarded the contract to develop the second phase of
the railway project even if the government had said it will bid
out the contract to other investors.
"We're still pretty much negotiating the Phase 2 project. We
have the contract which is the extension of the Phase I
agreement. We decided to wait after the elections before we
proceed with Phase 2. Hopefully after the inauguration [of
President Gloria Macapagal Arroyo], we can resume talks with the
government," Mr. Sobrepeña said.
He said he is hoping Malacañang will finally approve the
contract since it has already been given the go signal by the
National Economic and Development Authority (NEDA).
"We're just finalizing the details. There's already an
Investment Coordination Committee and NEDA approval. In the
final agreement, the Department of Justice might be involved and
Malacañang of course," he said.
The Phase 2 of the MRT III project involves building an
additional 5 kilometers of railway, composed of three train
stations, from the North Triangle in Quezon City up to Monumento
in Caloocan. The project will cost roughly $195 million and will
connect the MRT III to the Light Rail Transit Line 1. The MRT
III currently runs from Taft Avenue in Pasay to North Triangle
in Quezon City.
Mr. Sobrepeña said it is important the government approves
the build-operate-transfer contract the soonest possible time
since the MRT III line has already reached its full ridership
capacity.
"We're rushing because the ridership of the MRT III has
already reached maximum level which is 400,000 a day. We need to
add trains so we need Phase 2 so we can add more trains," he
said.
Mr. Sobrepeña said additional improvements to MRT III's
facilities, such as more efficient ticketing machines and
improvement of train stations, are also incorporated in the
project's second phase.
"There are plans of adding more ticketing stations and we're
trying to build everything into the Phase 2 project because that
will bring in more riders, then we need to buy more trains and
we need to buy all of that," he said. The MRT III consortium
plans to attain profitability on its 10th year of operations
which is in 2010. |
Monetary authorities hope to continue encouraging business
expansion by keeping key interest rates low, even if their US
counterparts have decided to finally raise key rates.
In a way, this can be seen as a reaction to the government
report on Tuesday that factory output was down for the eighth
consecutive month in April, as rising consumer prices and
election jitters forced many manufacturers to produce less than
they did a year earlier.
"The Monetary Board believes that the conditions for output
growth continue to suggest a need for policy stimulus to remain
in place," Bangko Sentral ng Pilipinas (Central Bank of the
Philippines, or BSP) Governor Rafael Buenaventura said in a
statement.
This was after that board decided to keep for the 12th
straight month the central bank's overnight borrowing rate at
6.75%, and the overnight lending rate at 9.0%.
And with the central bank keeping benchmark loan rates
steady, commercial banks are expected to do the same -- to the
relief of their customers.
"The presence of continued soft spots in domestic demand, the
absence of any sharp upswing in credit and investment activity,
and the possibility of downside risks to external demand, given
expectations of tighter money in the major economies, argue
against the withdrawal of the policy stimulus," Mr. Buenaventura
explained.
In April, only 13 out of every 100 factories operated at full
capacity, with the majority (53 out of 100) running at only 70%
to 89%. Manufacturers said rising prices, and higher inflation,
forced them to cut production.
The US Federal Reserve on Wednesday raised interest rates by
25 basis points to 1.25%, the first increase in four years, to
head off inflation in the US economy.
But Mr. Buenaventura said the US Fed decision "does not
warrant a corresponding increase" locally. "Most markets have
already priced in the US policy without significant
repercussions on the peso, whose volatility could have an
inflationary impact," he said.
The Philippine central bank usually matches any rate increase
by the US Fed, to keep the peso stable and at the same time
encourage investors to keep their money locally, instead of
going to the US or other markets where interest rates are
higher.
Key Bangko Sentral rates were last changed on July 2, 2003,
when they were cut by 25 basis points.
But in February, the central bank moved to protect the
battered peso by hiking the liquidity reserves that banks are
required to hold to 10% from 8%. Since then, inflation has risen
steadily, hitting 4.5% in the year to May from 4.1% in the
previous month, and raising expectations of a further rate
tightening this year.
Mr. Buenaventura said the central bank would continue to keep
a close watch on inflation pressures. For now, he said monetary
tightening was not necessary because inflationary pressures were
largely supply-driven.
"The impact of these supply-side factors on inflation is
likely to be transitory and thus, is not likely to be influenced
by monetary action," he said.
These factors include higher fuel prices, transport fares,
and utility charges -- which resulted in a
PhP20 increase in the living allowance of Metro Manila
workers.
The central bank's year-end inflation rate target is 4% to
5%. It expects a higher rate for 2005, still because of
supply-side factors.
Mr. Buenaventura said the monetary board affirmed its
position that the central bank should guard against exchange
rate volatility, to make sure it did not affect price stability.
"In light of these conditions, the Monetary Board is of the
opinion that the prevailing monetary settings remain
appropriate," Mr. Buenaventura said.
-- I. C. C. Gonzales with AFP and Reuters
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President Gloria Macapagal-Arroyo has to get down to business
immediately and accelerate her economic program for the next six
years, Bangko Sentral ng Pilipinas Governor Rafael B.
Buenaventura yesterday said.
The new government, Mr. Buenaventura said, has to get much of
the work started within the next three months to send a signal
to foreign investors that it is serious in implementing reforms.
This follows a threat by Fitch Ratings that the country faces a
possible credit rating downgrade if the Arroyo administration
fails to improve the country's fiscal position.
A government official, however, yesterday said a downgrade is
not likely given reforms the government has undertaken in terms
of restructuring the power sector and improving revenues.
"The country's economic team is forming a revenue
mobilization program for the government which include strong
measures ... these will be refined and further processed," the
official, who requested anonymity, said.
Economic managers have presented several revenue and policy
measures for the administration's consideration with the aim of
meeting the goal of a balanced budget by 2009.
The National Economic and Development Authority (NEDA) said
it is working on the Medium-Term Philippine Development Plan (MTPDP)
which will serve as the economic blueprint for the next six
years. It is expected to include the 10-point agenda presented
by Mrs. Arroyo and possible new revenue measures.
Mr. Buenaventura said the economic program has to be finished
and approved as soon as possible. Ms. Arroyo is expected to
present the program on July 26 when she delivers her State of
the Nation Address.
The BSP chief said the administration also has finalize the
list of legislative measures it wants to push in the next
Congress, which should gain ground in both Houses by September
and possibly hurdle deliberations by the first quarter of next
year.
"In the next three months, much of the work should at least
have started," he said.
On Wednesday, London-based Fitch urged the government to
raise taxes and address the financial problems of state-owned
National Power Corporation (Napocor).
"Failure to exploit the improved political backdrop by making
headway on fiscal policy tightening could see the Philippines'
rating strengths start to wither again, following the downgrade
in 2003," said Brian Coulton, senior director of Fitch's
Sovereign Group.
Fitch said the government's failure to address the problems
of Napocor could negatively impact on the country's sovereign
credit rating. It is maintaining the Philippines' long-term
foreign and local currency sovereign ratings at "BB" and BB+",
respectively, both with a stable outlook.
A lower credit rating raises the country's borrowing costs as
creditors demand higher returns for their funds to compensate
for higher risk.
The government official, meanwhile, said addressing the power
sector issue involves a plan to absorb
PhP500 billion in Napocor debts and speeding up its
privatization. This aims to meet a new goal of privatizing at
least 70% of Luzon and Visayas' rated capacity by December 2005.
Economic managers are also proposing several new tax
measures, including the indexation to inflation of taxes on
tobacco products and alcohol drinks, hiking the minimum gross
receipts tax for land transportation as basis for computing
so-called common carrier tax, rationalization of fees and
charges, a shift to gross income taxation, rationalization of
fiscal incentives, and a tax on text messaging and petroleum
products. These measures - which need Congress approval - are
expected to earn the government a minimum of
PhP50 billion annually.
Fitch recognized that authorities have stopped the rot in
terms of the sharp fiscal deterioration seen in 2002, with the
national government deficit declining to 4.7% of gross domestic
product (GDP) in 2003 from 5.3% a year earlier.
Budget shortfalls so far in 2004 appear to be on track,
notwithstanding a slight increase in the deficit in May, to meet
the annual deficit target of
PhP198 billion or 4.2% of GDP, despite fears of a pre-election
spending boom.
"But the somewhat steadier near-term fiscal picture belies an
underlying trend deterioration in fiscal health as reflected in
five consecutive years of deficits of 4% of GDP or more, a sharp
fall in tax revenues since the late 1990s, a rise in national
government debt to 78% of GDP at end-2003 from 58% at end-1999
and an increase in the burden of debt interest payments," Mr.
Coulton said.
Socioeconomic Planning Secretary Romulo L. Neri, meanwhile,
said planning guidelines and a memo instructing all government
agencies to formulate proposals for the MTPDP will be presented
to the Cabinet next week.
Acting NEDA director Scholastica D. Cororaton said the MTPDP
will include the 10-point agenda presented by Mrs. Arroyo during
the her inaugural speech and measures for raising government
revenues.
"In broad, (we are looking at) better revenue collection
efficiency by pushing tax audits and the computerization of the
Bureau of Internal Revenue (BIR)," Ms. Cororaton said.
"We will push for new taxes like tax on cigarettes and beer,
rationalization of fiscal incentives so that ... we could remove
some overlaps in the tax incentives that are given by the
Philippine Economic Zone Authority and the Board of
Investments," she said.
One major change in the MTPDP, Ms. Cororaton said, is
aligning major economic targets with the activities of the
government agencies concerned.
The NEDA is also working with the Department of Budget and
Management in prioritizing expenditures through what it calls "sectoral
efficiency and effectiveness reviews." --
reports from Iris Cecilia C. Gonzales, Karen L. Lema and
Jennifer A. Ng |
By JUDY T. GULANE, Reporter
Albay Rep. Jose Clemente S. Salceda suggested a
program-directed use by lawmakers of its Countryside Development
Fund (CDF), otherwise known as "pork barrel," or it would not be
released to them by Malacañang.
By program-directed use, he meant channeling them to any of
the 10-point programs President Gloria Macapagal-Arroyo had
outlined in her inaugural speech on Wednesday.
Mr. Salceda, who is gunning for the House appropriations
committee chairmanship in the 13th Congress and who currently
the Economic Management Group, said lawmakers must share in the
"burden" when government begins shoring up its fiscal situation.
The government faces a combined public sector debt of
PhP244.6 billion last year. To wipe it out, government needs
to step the up efforts of the fiscal position of government
corporations as well as generate revenues. Another aim is to
balance the budget by 2009.
The Economic Management Group is an informal group composed
of former Trade official Tomas Alcantara and a representative of
the National Economic Development Authority. The group serves as
an advisory group for tax measures to be pursued by government.
Mr. Salceda said it would be very difficult to impose a
moratorium on the pork barrel of district and party-list
representatives since "the government is asking them to do
something painful, such as legislate taxes," which would be
unpopular among their constituents.
But since the government is on the brink of a fiscal crisis,
and targets balancing the budget by 2009, then the tax measures
are necessary. To maximize the use of pork barrel funds -- which
is at PhP100 million per representative -- then the government
may essentially browbeat members of Congress by threatening to
withhold these funds.
Mr. Salceda said his suggestion might cost him the
appropriations committee chairmanship but stressed unpopular
decisions were required at this time that the Philippines risks
being downgraded by international credit rating agencies, which
in turn would not allow it to borrow and service its debts and
spend for its priority projects.
Government must raise taxes therefore, while Congress members
could spend their CDF on scholarships and school buildings,
potable water and electrification systems, health care coverage,
loans to small and medium entrepreneurs, among others, in their
respective districts.
The government could also withhold the Internal Revenue
Allotment to local government units, Mr. Salceda said.
"This is allowed under Republic Act 7160 or the Local
Government Code if the government is in a fiscal crisis," he
said. "Not only must the people suffer but Congress and the LGUs
must share in the pain of restoring fiscal health to the
government."
The government needs about PhP100 billion a year in new taxes
every year, on top of the economy's organic growth of about 12%
per annum. Among the tax measures members of the Economic
Managers Group have discussed are:
Excise taxes on sin products such as alcohol and cigarette
products -- to generate PhP14 billion;
Excise tax on petroleum products -- to generate PhP9 billion;
Expanding the expanded value added tax (EVAT) to 12% from 10%
-- to generate PhP14 billio.
The excise tax on petroleum products will merely require an
executive order, while the excise taxes on sin products and
expanded EVAT will require congressional legislation.
On top of the PhP37 billion to be collected from these three
taxes, the Bureau of Internal Revenue (BIR) has the potential to
collect PhP102 billion in tax leakages.
"The BIR must institute efficiency measures aimed at
capturing leakages within its system," Mr. Salceda said.
Recently, the government announced that it would increase its
tax effort to 13.7% next year from 12.7% this year. The BIR,
which contributes 80% to the government's revenues, is targeting
at collecting PhP477 billion this year and PhP579 billion next
year.
The Economic Management Group is suggesting granting tax
amnesties to individuals and corporations. Tax amnesties are
given to individuals and corporations that failed to pay their
income taxes.
"As long as they submit their statements of assets and
liabilities, then they will be given a tax amnesty, roughly
about 5% of their total net worth," Mr. Salceda said. "This will
serve as total payment for their owed taxes."
Tax measures, he said, must be based on four principles:
"there should be gain after the pain; there should be more gain
than the pain; gain (the fruits of the 10-point program) should
be equitably shared; and the pain should be disproportionately
shared, that is, to be mainly paid by the rich. |
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Money supply rose 6.1% to
PhP1.73 trillion in May from a year ago, data from the Bangko
Sentral ng Pilipinas (BSP, or the central bank) showed. On a
monthly basis, money supply or domestic liquidity grew 1.4%,
slightly higher from the 0.3% growth registered in April.
Domestic liquidity, the country's broadest measure of money
supply, sums up all assets circulating in the financial system,
including cash-at-hand, demand deposits, savings deposits and
time deposits.
The Bangko Sentral traced the money supply growth to an
increase in net foreign assets of the monetary system and an
improvement in public and private sector borrowings.
Central bank data showed net foreign assets of the monetary
system went up by 8.6% in May. It said the continued improvement
in domestic liquidity reflected the overall trend of improving
economic activity, buoyed by an increase in the country's value
of production index.
Public sector borrowings, which fuel credit activity in the
country, rose 20.5% in May while credits to the private sector
expanded by 3.4%.
"The continuing growth in the overall demand for credit was
accompanied by improvements in domestic demand, as reflected in
various indicators of domestic economic activity," BSP Governor
Rafael B. Buenaventura yesterday said.
The central bank said average capacity utilization in
manufacturing remained steady at 78.8% in May from the previous
month. In addition, car sales grew in during the same mon th.
The local automotive industry sold 6,978 units from 6,173 units
in April.
Rising domestic liquidity relative to demand for money
mirrors an expanding economy, but too fast a growth could also
cause inflationary pressures and could prompt the central bank
to use its monetary tools to control liquidity in the system. On
the other hand, a weaker expansion in money supply indicates
sluggish economic activity and slower job creation.
Mr. Buenaventura said monetary authorities will keep a tight
watch on money supply to ensure that liquidity conditions remain
supportive of the economy's low inflation growth target.
"The BSP will closely watch the evolving macroeconomic
conditions including risks to inflation in order to implement
the monetary policy response," he said.
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Gatchalian-led Metro Alliance Holdings Corp. is in talks with
at least three new investors to raise $15 million in fresh
capital that will be used to finance the rehabilitation of the
recently acquired Bataan Polyethylene Corp. (BPC).
In an interview with BusinessWorld following the
company's stockholders' meeting yesterday, Metro Alliance
Chairman Renato B. Magadia said the company is in the process of
recommissioning or rehabilitating the resins manufacturing plant
in Mariveles, Bataan in time for a scheduled reopening early
next year.
"We would need at least $15 million to put it back into
operation. We are now in the process of looking for a strategic
partner which could come in through infusion of equity. We are
also looking at bridge financing," he said.
Mr. Magadia said once running at full capacity, Metro
Alliance plans to export BPC's products to China which has a
huge demand for resins. Thus, he said the company is talking to
a Chinese investor for a possible funding agreement for BPC.
Early this year, Metro Alliance together with a group of
foreign investors, bought $201 million in BPC's debt papers from
the International Finance Corp. paving for its acquisition of an
83% stake in the mothballed resins manufacturer.
Mr. Magadia said once operational, the new BPC will start
with a clean balance sheet and an "almost debt-free structure."
It will produce as much as 275,000 metric tons of polyethylene
annually, taking its place as the country's largest plastics
resins maker. These plastic resins are basic raw materials used
by converters for making plastic films, bags, bottles, soft
drink crates, among others.
"The completion of the purchase of the BPC plant will require
recommissioning of the plant and restructuring of BPC's
financial and capital base. We plan to operate the polyethylene
business backed by a strong equity base," Mr. Magadia said.
He said Metro Alliance will continue to use BPC's technology and
hopefully expand its capacity to its maximum level of 400,000
metric tons per year. It will also employ as much as 250 people.
"BPC will continue to be a license [holder] of British
Petroleum's (BP) Innovene polyethylene technology with access to
technical assistance. BP's extensive and long experience in the
petrochemical business worldwide has enabled it to develop the
leading technologies in the industry," he added.
Initially built at a cost of $350 million by petroleum giants
British Petroleum of the United Kingdom, Petronas of Malaysia,
and Sumitomo of Japan, BPC stopped operating in 2001 shortly
after opening due to lack of government support.
Mr. Magadia said Metro Alliance's acquisition of BPC will
pave way for the firm's entry as a major petrochemical player.
-- Leilani M. Gallardo |
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The board of Pilipino Telephone Co. (Piltel) yesterday
approved raising the firm's authorized capital stock to
PhP12.8 billion from
PhP3.5 billion to accommodate creditors wishing to convert their
preferred shares to common shares.
Piltel told the bourse it will seek stockholders approval in
a special meeting on Sept. 3. "The purpose of the increase in
authorized capital stock is to create such a number of shares of
common stock as would be sufficient to accommodate any
conversion of the shares of convertible preferred stock of the
company."
With the move, the PhP12.8-billion authorized capital stock
would be divided into 12.06 billion common shares with a PhP1
par value, 120 million Class I preferred shares at PhP2 par
value, and 500 million Class II preferred shares at PhP1 par
value.
Under the current setup, only 2.760 billion shares are
classified as common stock at PhP1 par value.
An analyst said Piltel's move would assure holders of
preferred shares they could readily convert their shares into
common shares.
Pitel restructured its
PhP41-billion debt in 2001, wherein 50% of its debt were
cancelled in exchange for convertible preferred shares of
Philippine Long Distance Telephone Co.
Ramon Isberto, public affairs head of Piltel affiliate Smart
Communications, Inc., said "the increase in authorized capital
stock is in preparation for the steps we [Smart] will take"
concerning the $368-million debt swap with Piltel creditors,
when Smart would end up owning as much as 92% of Piltel.
-- Anna Barbara L. Lorenzo
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OUTLOOK - Philippine June CPI seen up 4.3-5.0 pct yr-on-yr on
oil prices
|
---- by Enrico de la Cruz ----
MANILA (AFX-ASIA) - The Philippines' Consumer Price Index
(CPI) is likely to have risen 4.3-5.0 pct year-on-year in June,
after a 4.5 pct rise in May, pressured by recent increases in
oil prices and public transport fares, economists said.
They said seasonal factors are also seen coming into play,
such as spending related to the beginning of a new school-year
this month, which is expected to have driven inflation for the
services index higher.
However, with the first half inflation expected to remain
within or even below the government's full-year target of 4-5
pct, economists do not expect any policy action from the
Philippine central bank -- despite the 25 basis point hike in US
interest rates announced last night.
They said Philippine inflation may rise further in the
coming months, pressured by a wage hike for workers that is to
take effect in July, but it would still be not enough to warrant
a policy measure by the central bank.
"Inflation may climb to as high as 4.7-4.9 pct in the
second half as recently-approved wage hikes start to affect
prices," said Euben Cuaton Paracuelles, an economist at DBS Bank
in Singapore.
He sees the June inflation rate settling at 4.5 pct
year-on-year.
But since the increase in consumer prices remains
supply-driven, and as it has not pushed the average inflation
beyond the government target, he said the central bank is "not
likely to react soon."
The headline inflation rate for the January-May period
averaged 3.8 pct.
Central bank governor Rafael Buenaventura reiterated on
Monday that the policy-making Monetary Board is likely to leave
the central bank's overnight interest rates steady at its
monthly policy review today, despite the widely-expected rate
hike in the US.
The central bank's overnight rates have remained unchanged
for about a year now at 6.75 pct for borrowing and 9.00 pct for
lending.
The central bank itself expects the annualized CPI rise in
June to come in at 4.2-4.6 pct range.
Cecilia Tanchoco, an economist with Bank of the Philippine
Islands, said she sees an inflation rate as high as 5.0 pct in
June, "basically because of cost-push factors like higher
transport fares and oil prices."
"Also, you see a seasonal upside in June because of the
school opening," she said.
But since these factors are beyond the control of the
central bank, a monetary policy tightening is not expected at
this point.
She, however, agrees with other economists that the upward
pressure on inflation will continue in the coming months,
especially with growing prospects of sustained increases in
electricity rates.
"The wage hike is minimal and limited to metropolitan
Manila workers. What is more worrisome is the continued rise in
power rates," Tanchoco said.
Manila Electric Company, the country's largest power
distributor, has raised its generation charge by 0.1327 pesos
per kilowatthour (kWh), to be reflected in its July billing
statement.
State-owned National Power Corp (Napocor), meanwhile, filed
an application with the Energy Regulatory Commission for an
average 1.85 pesos per kWh increase in its basic rates
nationwide, in a move to make its tariff attractive while
preparing to sell more of its power-generating plants.
Napocor sells electricity to Meralco and other distributors
nationwide.
Jonathan Ravelas, a market strategist at Banco de Oro
Universal Bank, expects an inflation rate of 4.3-4.5 pct
year-on-year in June.
The National Statistics Office is scheduled to release the
June CPI data on July 6.
afxmanila@afxasia.com
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Manila shares mixed amid consolidation; second-liners in focus
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MANILA (AFX-ASIA) - Share prices were mixed in mid-session
as the market remained in a consolidation mode, with buying
interest focused largely on second-liners, dealers said.
However, breadth was largely positive as domestic political
concerns eased somewhat after yesterday's inaugural of President
Gloria Arroyo, winner of the hotly-contested May 10 election.
They said the market saw minimal reaction to the 25-basis
point increase in US interest rates, with the move having
already been priced in.
At 10.48 am, the 30-company composite index was up 1.5
points or 0.09 pct at 1,577.90 on volume of 183.0 mln shares
valued at 216.2 mln pesos. It has so far moved between 1,575.47
and 1,583.74.
In the broader market, gainers overwhelmed losers 34 to
seven, with 30 stocks unchanged so far.
"The market is just consolidating around the 1,580-point
level, but with a positive bias. I think it's just rotational
buying, with the second-liners now in focus," Westlink Global
Equities chairman Rommel Macapagal said.
He said he still expects a test of the 1,600-point
resistance level in the coming sessions.
Top-traded Philippine Long Distance Telephone Co (PLDT) was
up 15 pesos at 1,165 on volume of 53,880 shares, tracking the
0.26 usd advance of its American Depositary Receipts (ADRs)
overnight to 20.86.
PLDT expects to announce its second quarter results in
early August. The results are widely expected to show further
gains in its mobile phone business under Smart Communications
Inc.
Bank of the Philippine Islands was down 1.50 at 41.50,
while Globe Telecom rose 10 to 830.
Metro Pacific was up 0.02 at 0.30, while Ayala Land was
down 0.10 at 5.70.
SM Prime was down 0.10 at 6.00.
(1 usd = 56 pesos)
afxmanila@afxasia.com
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STOCK ALERT - Philippines' PLDT higher after ADR gains
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MANILA (AFX-ASIA) - Philippine Long Distance Telephone Co (PLDT)
was higher in early trade, tracking the advance of its American
Depositary Receipts (ADRs) overnight, dealers said.
PLDT was top-traded on volume 44,280 shares and was up 20
pesos at 1,170.
Its ADRs rose 0.26 usd to 20.86 last night.
PLDT expects to announce its second quarter results in
early August. The results are widely expected to show further
gains in its mobile phone business under Smart Communications
Inc.
(1 usd = 56 pesos)
afxmanila@afxasia.com
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Philippines' Piltel raises authorized capital to 12.8 bln pesos
from 3.5 bln |
MANILA (AFX-ASIA) - Pilipino Telephone Corp (Piltel) said
its board of directors has approved a proposal to raise its
authorized capital stock to 12. 8 bln pesos from 3.5 bln with
the creation of new common shares to accommodate the conversion
of preferred shares in the future.
The 12.8-bln peso authorized capital stock will comprise
12.06 bln common shares with a par value of 1.00 peso, 120 mln
shares of Class I preferred stock with par value of 2.00 pesos
and 500 mln shares of Class II preferred stock with par value of
1.00 peso.
Piltel said the increase in its authorized capital stock is
subject to the approval of stockholders owning or representing
more than two-thirds of the outstanding capital stock.
Smart Communications Inc is to acquire control of Piltel
from its parent Philippine Long Distance Telephone Co (PLDT).
Smart will absorb most of Piltel's total restructured debts
of more than 20 bln pesos and end up owning as much as 92 pct of
the company after the debt swap and ownership transfer, PLDT
Chairman Manuel Pangilinan said.
Both Smart and Piltel offer mobile phone services in the
Philippines and their combined subscriber base accounts for more
than half of the local market.
(1 usd = 56 pesos)
afxmanila@afxasia.com
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| Philippines' ABS-CBN
Broadcasting declares 0.64 pesos/share cash div |
MANILA (AFX-ASIA) - ABS-CBN Broadcasting Corp said it will
pay a cash dividend of 0.64 pesos per share to stockholders on
record as of July 26.
Payment is set for August 10.
(1 usd = 56 pesos)
afxmanila@afxasia.com
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Philippines' Banco de Oro still pushing for Equitable PCI stake
buy from SSS |
MANILA (AFX-ASIA) - Banco de Oro Universal Bank (BDO) said
it is still interested in acquiring the 29 pct stake of
government-run Social Security System (SSS) in Equitable PCI
Bank, after a deadline to close the deal lapsed yesterday.
"Since the BDO group has entered into a binding letter (of
intent, signed in Dec 2003), with the SSS for the transaction,
management is still considering its options on how to proceed,"
Banco de Oro told the stock exchange.
Banco de Oro, which the group of mall magnate Henry Sy
controls, earlier told the stock exchange that it may go to
court if the SSS, the pension fund for private sector workers,
reneges on its commitment to sell its 29 pct stake in Equitable
PCI.
Officials of SSS, which wants to be paid in cash for the 29
pct Equitable PCI stake, could not be reached for comment.
However, under the terms of the original agreement, Banco
de Oro was to make a down-payment of 1 bln pesos in cash, while
the balance of 13 bln was to be secured through a 6.5-year zero
coupon non-amortizing promissory note.
In its disclosure to the exchange today, Banco de Oro said
it is also aware of a Philippine Association of Retired Persons
(PARP) petition for a temporary restraining order (TRO) from the
Makati Regional Trial Court against the deal.
"However, as far as we know, no TRO has been issued," Banco
de Oro said.
In filing the petition, PARP noted that Singapore-based
Abacus Capital Cayman Ltd had offered to buy the Equitable PCI
stake at 49 pesos per share, higher than the 43.50 pesos per
share price in the agreement between Banco de Oro and SSS.
The Banco de Oro-SSS deal involves some 187.85 mln
Equitable PCI shares.
(1 usd = 56.12 pesos)
afxmanila@afxasia.com
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Philippines' Banco de Oro, SSS fail to close Equitable PCI deal
- report |
MANILA (AFX-ASIA) - Banco de Oro Universal Bank has failed
to close a deal to purchase state-run Social Security System's (SSS)
29 pct stake in Equitable PCI Bank, the BusinessWorld newspaper
reported.
The deal was supposed to be closed yesterday, when the
exclusive period of negotiations between the parties lapsed.
The paper quoted an unnamed Banco de Oro source as saying
the bank will evaluate its options, but still hopes that the
deal will push through.
Banco de Oro, which the group of mall magnate Henry Sy
controls, earlier told the stock exchange that it might go to
court if the SSS, the pension fund for private sector workers,
renege on its commitment to sell its 29 pct stake in Equitable
PCI.
"Court enforcement of the purchase agreement with SSS or
acquisition of branch licenses are courses of action always open
to Banco De Oro," it said.
SSS wants to be paid in cash for the 29 pct Equitable PCI
stake.
However, under the terms of the original agreement, Banco
de Oro was to make a down-payment of 1 bln pesos in cash, while
the balance of 13 bln would be secured through a 6.5-year zero
coupon non-amortizing promissory note.
(1 usd = 56.12 pesos)
afxmanila@afxasia.com
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Philippines' Pancake House plans expanding into Singapore,
Malaysia - report |
MANILA (AFX-ASIA) - Restaurant chain operator Pancake House
Inc is considering expanding into Singapore and Malaysia as
early as next year, the BusinessWorld newspaper reported, citing
company chairman and chief executive officer Martin Lorenzo.
"We've had many offers. I would consider that by next
year," Lorenzo was quoted as saying.
Pancake House has just acquired Dencio's Foods Specialists
Inc, a unit of Dencio's Foods Corp, which operates restaurants
and offers franchises.
afxmanila@afxasia.com
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Manila shares outlook - Higher amid consolidation; US rate hike
discounted |
MANILA (AFX-ASIA) - Share prices are expected to open
higher, even as the market remains in a consolidation mode, with
a likely return of bargain hunters after Wall Street's modest
gains overnight, dealers said.
Selective buying is expected, although the 25 basis point
interest rate hike in the US has already been priced into the
market, they added.
However, they said the market is seen remaining in stagnant
mood generally as it awaits fresh leads that will perk up
investor interest.
Yesterday, the composite index closed down 6.95 points, or
0.44 pct, at 1, 579.40.
"The market is expected to remain in a consolidation mode
... despite a US interest rate hike. The market will have a
minimal reaction to the rate hike as economists and investors
had anticipated such a move," AB Capital Securities research
director Jose Vistan Jr said.
Vistan sees the market's support at 1,550 and resistance at
1,620.
Dealers said investors are expected to focus on companies
likely to post strong corporate profits for the first half, such
as those in telecoms.
afxmanila@afxasia.com
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Philippines' Alaska Milk to list 70,000 shares tomorrow today - stock
exchange
|
MANILA (AFX-ASIA) - Alaska Milk Corp will list 70,000
common shares today, the stock exchange said.
The shares were availed of and fully paid under the
company's executive employee stock option plan.
Alaska closed untraded after its previous close of 3.00
pesos per share.
(1 usd = 56.2 pesos)
cecille.yap@afxasia.com
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Philippines discussing with IMF raising VAT to 14-15 pct from 10
- reports |
MANILA (AFX-ASIA) - The Bureau of Internal Revenue said
increasing VAT is one of the many revenue-raising possibilities
discussed between the Philippines and an IMF delegation, local
media reported.
They quoted BIR commissioner Guillermo Parayno as saying:
"They're thinking that we probably should increase the rate from
10 pct to 14 or 15 pct."
The VAT rise is believed to be part of a series of
recommendations made by an IMF review team in the Philippines to
evaluate the government's economic policies.
VAT is charged on the sale of goods and services, including
imports. A 10 pct tax is collected on gross receipts from the
sale of goods and services, and this is usually passed on to
consumers.
Two years ago, the IMF proposed the government should raise
the VAT rate to 11 or 12 pct, but the proposal was dropped by
the Department of Finance.
According to media reports today a VAT rate of 15 pct would
raise at least 10 bln pesos.
The BIR expects to collect 477 bln pesos in taxes this
financial year.
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Angry Philippine passengers delay Air France flight with bomb
threat-officials |
MANILA (AFX-ASIA) - Flight operations at Manila airport
were disrupted by a bomb hoax which officials blamed on local
passengers who were prevented from boarding an Air France flight
due to suspected fake passports.
Airport officials ordered the Air France jet bound for
Italy to abort its take-off late yesterday after the airline
received an anonymous bomb threat by telephone, they said.
Passengers were ordered to disembark as bomb squads combed
the aircraft and its cargo but found no explosives. The plane
took off more than four hours later.
"Investigators suspect this was the handiwork of several
disgruntled passengers who were unable to board the Air France
flight," airport manager Ed Manda said.
Air France earlier prevented five Filipinos from boarding
the same flight due to suspicions that their passports were
fake.
The five were detained by justice department agents over
the possible forgeries but it was not known if they had admitted
making the bomb threat.
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Philippines faces downgrade if fiscal problems not solved -
Fitch |
MANILA (AFX-ASIA) - Fitch Ratings said the administration
of President Gloria Arroyo must commit to raising taxes and
finding a lasting resolution to the financial problems of the
state-owned National Power Corporation (Napocor).
In a statement, the international ratings agency warned
that without these measures the Philippines faces the risk of a
ratings downgrade.
"Failure to exploit the improved political backdrop by
making headway on fiscal policy tightening could see the
Philippines' rating strengths wither again, following the
downgrade in 2003," says Brian Coulton, senior director of
Fitch's Sovereign Group.
In a special report published today, Fitch assesses the
implications of financial problems at Napocor for the
Philippines' sovereign creditworthiness, highlighting the urgent
need for progress towards privatisation.
Fitch is maintaining the Philippines' long-term foreign and
local currency sovereign ratings at "BB" and "BB+",
respectively, both with a stable outlook.
Arroyo, who was sworn in at noon today after winning a
bitterly contested election on May 10, sought reconciliation
with her critics and promised a government that will exercise
fiscal prudence, fight corruption and ensure economic growth in
the next six years.
Arroyo was elected vice-president in 1998 and took over as
president in 2001 when her predecessor, Joseph Estrada, was
ousted by a popular revolt on corruption allegations.
She will serve for six years.
"I pledge to you a government that will live within its
means and put every spare peso to real work," she said in her
inaugural speech.
The government has promised to balance the budget by 2009.
For this year, however, its budget deficit is expected to reach
197.8 bln pesos, or 4.2 pct of gross domestic product.
Election-related spending and interest payments on loans
raised the government's total expenditure in the January-May
period.
As a result, the government recorded a budget deficit of
12.7 bln pesos in May, taking the cumulative deficit for the
first five months of the year to 77.4 bln, or only about 2 bln
below the first-half ceiling of 79.6 bln.
Fitch said that Arroyo's electoral victory "should bring to
an end the prolonged period of political uncertainty that has
been unnerving investor sentiment for several months."
"The (election) result ushers in the prospect of sustained
stability in political leadership that has not been seen since
the Philippines adopted democracy," it said.
"Moreover the election win provides Arroyo with a much
stronger political mandate than she enjoyed in her first term in
office, having gained the presidency after the second "people's
power" uprising against former President Estrada."
Fitch also believes that Arroyo's political rivals will now
find it much harder to question her legitimacy when opposing
legislative proposals, a tactic they employed to some effect in
her first term.
Arroyo meanwhile is assured of support from Congress, which
will be dominated by her political allies in the next three
years.
"This new political environment offers the Arroyo
administration the opportunity to make significant inroads in
dealing with the Philippines' fiscal policy and governance
problems," Fitch said.
Fitch noted that in past few years the Philippine
government achieved some success on the fiscal front, with the
budget deficit declining to 4.7 pct of GDP in 2003 from 5.3 pct
a year earlier.
The revenue-to-GDP ratio rose to 14.6 pct last year from
14.3 pct in 2002, reflecting improved tax administration and
collection, while downward pressures on non-interest current
expenditures helped the overall government spending-to-GDP ratio
decline by 0.4 percentage points, Fitch said.
It also believes that the government's fiscal performance
so far this year looks to be broadly on track, despite a slight
increase in the deficit in May, to meet the annual deficit
target.
"But the somewhat steadier near-term fiscal picture belies
an underlying trend deterioration in fiscal health as reflected
in five consecutive years of deficits of 4 pct of GDP or more, a
sharp fall in tax revenues since the late 1990s, a rise in
national government debt to 78 pct of GDP at end-2003 from 58
pct at end-1999 and an increase in the burden of debt interest
payments," Coulton said.
He said that interest payments accounted for 36 pct of
total government revenues in 2003, "a ratio that is already high
compared to other sub-investment grade sovereigns and set to
rise further."
With half of its debt external, the government's balance
sheet is also exposed to exchange rate volatility, he added.
Moreover, he said "the national government finances conceal
major fiscal problems in the state enterprise sector -
specifically at Napocor, where losses have escalated sharply and
were much larger than expected in 2003."
Coulton said that the government's flexibility on
expenditure is thus diminishing, as interest payments increase
and higher investments in public infrastructure are needed.
"It will be important to see a strong commitment by the
Arroyo government to tax increases," he said.
He said the national government's plan to absorb some 500
bln pesos in debts of Napocor may "act as a catalyst for a final
resolution involving restructuring and privatization" of the
power sector.
"This proposal would increase the fiscal transparency of
Napocor's problems, which have been caused in part by political
decisions on electricity pricing," he said.
He said the privatisation proceeds could offset some
additional debt to be a bsorbed by the government.
He expects the national government's debt to rise to 90 pct
of GDP after the absorption of additional Napocor debts, which
would be the highest of any sovereign in the "BB" category.
Additional interest payments by the national government
would add 1 pct of GDP to the deficit from 2005, he said, thus
pressuring national government fiscal targets and further
underlining the need for tax increases.
afxmanila@afxasia.com
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Manila shares close lower ahead of US Fed decision |
MANILA (AFX-ASIA) - Share prices closed lower after a
sluggish session, ending seven days of gains, as investors
exercised caution ahead of the US Federal Reserve's policy
action, dealers said.
The inauguration today of Gloria Arroyo as the country's
14th president has already been discounted, as evident in the
main composite index's 3.5 pct rise ahead of today's event.
The 30-company composite index closed down 6.95 points, or
0.44 pct, at 1, 579.40 on trade of 568.45 mln shares worth
493.26 mln pesos. It moved between 1,569.85 and 1,587.62.
In the broader market, losers beat gainers 34 to 20, while
59 stocks closed unchanged.
Philippine Long Distance Telephone was unchanged at 1,150,
despite being the top traded stock on 173,190 shares.
Its American Depositary Receipts retreated 0.36 usd to
20.60 in New York overnight.
Dealers said the low turnover points to investors'
preference to stay on the sidelines to await the US Fed's first
interest rate increase in four years, as well as supporting
statements for clues as to how aggressively it will hike the
benchmark rate in the months ahead.
In a speech before she was formally sworn in, President
Arroyo sought reconciliation with her critics and promised a
government that will exercise fiscal prudence, fight corruption
and ensure economic growth in the next six years.
Dealers, however, said the market had risen ahead of
today's event.
Arroyo, who beat opposition standard-bearer Fernando Poe Jr
by over 1 mln votes, also vowed to create millions of new jobs
in the next six years, provide funding for small entrepreneurs,
make available electricity and water to all local communities,
develop the agri-business sector and send every Filipino child
to school.
"Today's inauguration is moot and academic. It is just an
affirmation, a formality, of President Arroyo's fresh six-year
term in office," said Summit Securities president Harry Liu.
"What is more important is her package of economic reforms.
Investors are likely keep a close watch of this agenda during
the president's first 100 days in office."
DA Market Securities president Nestor Aguila said there is
consolidation after the recent gains and ahead of the US
interest rates hike.
"Investors cheered Arroyo's victory early on. We may now
see the market consolidating," Aguila said.
Second most active Globe Telecom on 94,980 shares shed 25
pesos to 820.
Ayala Land rose 0.10 at 5.80 to 2.8 mln shares.
SM Prime gained 0.10 at 6.10 on 2.16 mln shares.
Pilipino Telephone Corp fell 0.04 to 1.76.
Metrobank dropped 1.00 at 27.
Unionbank retreated 0.50 to 24.
First Holdings closed 1.00 lower at 28.50.
The all-shares index gained 1.34 points to 1,013.22.
The commercial-industrial index shed 13.65 to 2,453.33.
Property rose 7.26 tlo 550.65, while mining climbed 2.82 to
1,541.63.
Oil declined 0.02 to 1.78.
Banking and finance fell 6.09 to 471.12.
(1 usd = 56.19 pesos)
cecille.yap@afxasia.com
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Forex - Arroyo inauguration fails to lift Philippine peso;
market awaits FOMC
|
MANILA (AFX-ASIA) - The peso was little changed from
yesterday against the US dollar, with President Gloria Arroyo's
inauguration failing to lift sentiment towards the local unit,
dealers said.
The market is cautious ahead of a decision on US interest
rates by the Federal Open Market Committee (FOMC) amid
expectations of a 25-basis point hike, they said, adding that
the market is also awaiting the Fed's comments on the future
direction of US interest rates.
At 10.25 am, the peso averaged 56.207 to the US dollar,
after closing yesterday at 56.20, on volume of 63 mln usd.
Dealers said although Arroyo's election victory is
generally favorable for the peso, political uncertainties remain
since her closest challenger, Fernando Poe Jr, refuses to accept
defeat.
Concerns about the government's budget deficit will also
likely to keep the peso at 56 levels, they added.
"The political risks are still there, with Poe refusing to
give up the fight. The budget deficit also remains a major
concern for the market," a commercial bank dealer said.
Demand for dollars is also rising, the dealer added, as
importers are increasing their reserves ahead of the importation
season in the third quarter.
"It's also seasonal and people are cautious because the
lure of the peso will diminish vis-a-vis the dollar if there is
an interest rate hike in the US, which the Philippine central
bank will not match," the dealer added.
Central bank Governor Rafael Buenaventura said on Monday
that the peso is still paying for the country's political risks.
It fell to a record 56.45 in late March amid political
uncertainties ahead of the May 10 presidential election.
He said the government must work to trim the budget deficit
and pursue reforms in the electricity sector to put the
Philippines on track to "solid" economic growth.
He reiterated that the central bank is unlikely to match
the US Fed rate hike given expectations that inflation this year
will remain within the government's 4-5 pct target.
In her 15-minute speech ahead of her inauguration at noon
today, Arroyo sought reconciliation with her critics and
promised a government that will exercise fiscal prudence, fight
corruption and ensure economic growth in the next six years.
"I pledge to you a government that will live within its
means and put every spare peso to real work," she said.
The government has promised to balance the budget by 2009.
For this year, however, its budget deficit is expected to reach
197.8 bln pesos, or 4.2 pct of gross domestic product.
Analysts said that for the Arroyo administration to win
back investor confidence in the economy, it must ensure that the
budget deficit is trimmed to prevent the government's burgeoning
debt from growing further.
Election-related spending and interest payments on loans
raised the government's total expenditure in the January-May
period.
As a result, the government recorded a budget deficit of
12.7 bln pesos in May, taking the cumulative deficit for the
first five months of the year to 77.4 bln, or only about 2 bln
below the first-half ceiling of 79.6 bln.
The dollar is seen trading between 56.10 and 56.30 today,
the dealer said.
afxmanila@afxasia.com
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