Thursday, July 08, 2004
First half GDP growth seen to beat 2003 performance
SEC okays Semirara plea to erase PhP1.6B in deficit
Government to referee talks on National Steel tariff cover
Labor row in San Miguel, BPI Family Bank, St. Benedict College settled
BSP chief warns of credit downgrade
BIR readying uniform rules for co-op taxes
Transport dep't to set toll hike for North, South expressways
Pensioners press bid to stop SSS-Banco de Oro deal
IRR for Securities Act ready by August
Stock exchange doesn't need OIC

Wednesday, July 07, 2004
Bourse picks new president
Exports up for 6th month
Inflation rises in June on oil price hike
Justice dep't backs SSS-Banco de Oro deal
Why Smart and Piltel cannot wed

July 5 - 6
July 1 - 2




First half GDP growth seen to beat 2003 performance

Economic planners are optimistic that economic output, as measured by the gross domestic product (GDP), in the first semester grew by a larger margin this year than last year. Socioeconomic Planning Secretary Romulo L. Neri, also director general of the National Economic Development Authority (NEDA), told reporters yesterday GDP growth for January-June likely surpassed the 4% growth rate for the same period last year. "The second quarter seems to be very encouraging. The leading indicators seem to be very good. [We already] registered a 6.4% growth for the first quarter, so 4% [for the first half] is easy. We may even exceed 5%," he said.

GDP growth will be achieved, he said, despite inflation in June hitting 5.1%, its highest since November 2001. "Our biggest problem really is the [June] inflation, but anyway, oil prices seem to have moderated a bit," Mr. Neri said. The economy (GDP) grew by 6.4% in the first quarter because of higher-than-expected output by all sectors, including the farm sector, which grew by 7.7%. The Department of Agriculture earlier attributed farm sector growth in the first quarter to good weather and increased production of most agricultural subsectors.

Mr. Neri expressed confidence that despite typhoons Enteng, Dindo and Igme, which damaged crops, the growth of the agriculture sector was not adversely affected in the second quarter. "The effect [of the typhoons] will be minimal and I don't think it will have a significant impact on the growth of the sector for the second quarter," he said. Mr. Neri, however, admitted that the growth of the economy could have slowed last quarter because of fuel price increases. "We estimated that there would be some dampening [in second quarter growth] because of high oil prices," he said. -- Jennifer A. Ng


SEC okays Semirara plea to erase PhP1.6B in deficit


The Securities and Exchange Commission (SEC) has approved the petition of Semirara Mining Corp., the country's largest coal company, to restructure its equity in a bid to erase PhP1.625 billion in capital deficit. In particular, the SEC approved Semirara's proposal to decrease its authorized capital stock to PhP21.370 million and its subscribed and paid-in capital stock to PhP5.342 million and the subsequent increase in the authorized capital stock to PhP100 million and subscribed and paid-in capital stock to PhP25 million. But a provision to reduce the number of listed shares was not approved as it has yet to be cleared by the bourse.

In a circular to brokers, the Philippine Stock Exchange (PSE) said trading of the shares of the coal company will remain suspended until the exchange approves the proposal to reduce the number of listed common shares as well as the proposal to delist 15,000 preferred shares. Further, the exchange said, proposal for the issuance of 19.657 million common shares to DMCI Holdings, Inc. which owns 73% of the company, will still be subject to the revised rules on additional listing of shares. "We shall inform the trading participant and the investing public of further developments on the aforementioned matters," the PSE said. Last month, Semirara sought SEC and PSE approval for its capital restructuring proposal.

With the application, the firm voluntarily asked for an indefinite suspension of the trading of its shares. In 1992, the SEC issued rules on equity restructuring, so companies in distress and in danger of insolvency could get a fresh start without having to dissolve itself and then reincorporating. Semirara petitioned the SEC for equity restructuring so it could rid itself of PhP1.625 billion in "accumulated deficit in retained earnings" as of Dec. 31, 2002. An "accumulated deficit in retained earnings" is indicative of financial distress, with a company failing to retain earnings or income from previous years, if any, an analyst had said.

But to belie speculation that it was losing money or was operating at a loss, Semirara had said that "there is an approved audited net income of PhP138,411,398 as of the approval of the restructuring." Semirara had also said it wanted to retire and cancel some shares of stock so it can raise new capital through the sale of new shares. It proposed to cut its authorized capital stock to PhP21.370 million, divided into 21,370,448 common shares with a par value of PhP1 per share from PhP1.812 billion, divided into 1.662 billion common shares with a par value of PhP1 and 15,000 preferred shares with a par value of PhP10,000 per share. It also proposed to reduce its issued and outstanding capital stock to PhP5.342 million worth of common shares from PhP1.631 billion. After which, it proposed to raise its authorized capital stock to PhP100 million, divided into 100 million common shares with a par value of PhP1 per share. DMCI Holdings, Inc. will subscribe to 19,657,338 common shares out of the new capital stock. The shares, which will have a par value of PhP1 per share, will be subscribed at a premium, or at PhP1.05 per share.

To date, the bourse has not yet approved the proposal for the reduction in the number of the listed common shares, the delisting of the 15,000 preferred shares, and the plan for DMCI to be issued 19,657,388 common shares. Semirara was incorporated on Feb. 26, 1980 to explore, develop, and mine for coal on Semirara Island, Antique. Its largest customer is state firm National Power Corp. But it recently expanded its market to include privately run electric and cement plants.


Government to referee talks on National Steel tariff cover

The debate on whether or not the revived National Steel Corp. should be given tariff protection to allow it to compete with cheap steel imports is likely to be settled soon with contending parties scheduled to sit down and strike a compromise before the government acting as mediator. Trade and Industry Sec. Cesar A.V. Purisima said the dialogue was needed "so we can finally move on." "I'm inviting the [new owner of National Steel] and downstream steel industry players to sit down so we can settle the tariff issue once and for all," he told reporters.

The Tin Can Manufacturers Association of the Philippines, Inc. earlier warned that prices of canned food products and nonfood items using tin cans as packaging would increase by at least 20% if Global Steelworks International, Inc.'s request for up to 35% tariff on tinplates from zero was granted. The tin can makers proposed instead to buy all of Global Steelworks' tinplate output "provided price and quality are competitive."

Aside from a 35% tariff on tinplates, Global Steelworks was said to have petitioned the Cabinet-level Tariff and Related Matters committee to hike tariffs on hot-rolled and cold-rolled coils to 30% from 3%. No such request was made for steel billets, which the National Steel plant in Iligan will not produce in the meantime. The tariff committee deferred action on the request until after an assessment of its impact on consumers. But Mr. Purisima said the government was working on a 15% tariff, the original rate proposed by Global Steelworks.

The Cabinet official said he was organizing the dialogue with the well-being of the national economy in mind. Any decision will "consider" the position of all stakeholders, he assured. The sale of National Steel to India's Global Infrastructure Holdings Ltd., holding company of Global Steelworks, has yet to be closed due to lack of certain documents, although tariff cover is not an issue according to creditor banks. Global Chief Pramod Mittal was in the country recently, attending the President's inauguration last June 30 and also paying her a courtesy call. -- Felipe F. Salvosa II


Labor row in San Miguel, BPI Family Bank, St. Benedict College settled

The National Conciliation and Mediation Board (NCMB) has reported the successful settlement of three labor disputes involving, food conglomerate San Miguel Corp., Ayala-led Bank of Philippine Islands (BPI) Family Bank, and St. Benedict College. Labor Sec. Patricia A. Sto. Tomas said the prompt attention given to the settlement of these cases is in line with the department's thrust to strengthen labor and management relations in all firms and industries. The mediation with the BPI employees and the BPI management resulted in PhP95.7 million in total economic package covering 1,337 workers. Salary increases amounting to PhP1,050 per month for the fourth and fifth year of the collective bargaining agreement (CBA) as well as a cost of living allowance (COLA) of PhP50 a month were agreed upon. The amount of employees' multipurpose loan was increased to PhP40,000 from PhP33,000 and a signing bonus of PhP9,000 was also provided.

In the case of BPI Family Bank, since April there had been a deadlock in CBA talks between the bank's management and the BPI Family Bank and BPI Consumer Banking Group Employees Union-Federation of Free Workers. The workers had initially demanded a PhP2,500 salary increase. The settlement of the San Miguel dispute benefited about 81 sales force personnel affected by the closure of three warehouses. In this case, the management agreed to provide the separated employees an additional PhP25,000 financial assistance each on top of their separation pay and benefits. The settlement package totaled PhP39 million.

The mediation in the St. Benedict College case resulted in an PhP8-million economic package for some 300 employees. The dispute also involved a CBA deadlock. The owners of the school also agreed to increase the wages of the employees to an amount equivalent to 70% of the tuition fee hike on top of the general wage increase. The NCMB recently reported a 56% decrease in the number of labor strikes in June to only 12 strikes from the 27 reported in the same period last year. "The DoLE (Department of Labor and Employment), through the NCMB is doing its job and exerting all efforts to maintain peace and harmony in the work place," said Labor Undersecretary Manuel G. Imson, in an earlier interview. -- Beverly T. Natividad


BSP chief warns of credit downgrade


The Philippines cannot afford another credit downgrade this year as it would leave the country in a more difficult fiscal problem by making it more expensive for the government to borrow, the Bangko Sentral ng Pilipinas (BSP, or the central bank) said yesterday. "We cannot afford another downgrade. It will make our life a bit more difficult to get out of the hole," BSP governor Rafael B. Buenaventura told reporters yesterday. He said another credit downgrade could raise by 1% to 2% the government's borrowing cost as creditors demand higher returns for their funds to compensate for higher risk. He said the government must show that it has a credible economic program for the next six years or face another downgrade.

Mr. Buenaventura's statements come just barely a week after London-based Fitch Ratings hinted of another credit downgrade. Fitch noted that unless the Arroyo administration can raise enough taxes to pay for the PhP522-billion debt of the state utility firm National Power Corp. (Napocor), it may lower its rating for the country. Last year, Fitch-a respected UK-based credit watcher, cut the country's sovereign debt rating by one notch to "BB" due to the government's deteriorating finances brought about by its failure to control its swelling budget deficit. Meeting this year's fiscal targets, including a budget deficit of PhP197 billion is crucial for the government to achieve a balance budget by 2009, Mr. Buenaventura noted. "The government must meet fiscal targets this year. It will be the base for the budget reduction program for next year," he said.

Among the measures that need to be put in place are additional tax measures and legislative measures that would strengthen the regulatory environment and the capital market. Mr. Buenaventura said that most foreign and local businessmen expect slight improvement in the economy in the third quarter without these new measures. If Fitch or any credit rating agency gives the Philippines a downgrade, he said government won't have much flexibility to borrow. "Businessmen will watch closely steps taken by the National Government," he said, adding that the administration should not allow discussions on charter change to sideline the more important economic issues.


In Davao City where he spoke at a forum at the Waterfront Insular Hotel, former finance secretary Jesus Estanislao said the government should immediately start reforms that will address the economic crisis the shortest time, otherwise it may turn into another Argentina which defaulted on its debt payment last year. "Debt is really high. We are really getting into the dangerous territory," Mr. Estanislao, who served in the Cabinet of then President Corazon Aquino, said. He said government must formulate credible financial programs to arrest the impending financial crisis. He said the first thing government should do is scrap the tax perks given to big businesses. He added that government should remove or at least study the implications of these privileges given to big businesses and concentrate on strengthening tax collection.

Mr. Estanislao also said government should cut its expenditures although with consideration to the important sectors. "We might be hurting ourselves [by imposing too much austerity measures]," he said, pointing out that government should look at what possible budgets could be realigned to maximize its delivery of basic services. Mr. Estanislao added that increasing tax rates "is inevitable," but what the government should do is increase taxes on sin products like cigarettes and alcohol. And before it embarks on amending the Constitution, Mr. Estanislao said the government "should first solve its fiscal deficit."


BIR readying uniform rules for co-op taxes

The processing of tax exemption applications of cooperatives would become easier as soon as the Cooperative Development Authority (CDA) and the Bureau of Internal Revenue (BIR) sign a memorandum of agreement detailing a uniform interpretation of applicable tax exemption procedures for cooperatives. The agreement was a result of the consultations held by the CDA with BIR to simplify and clarify the necessary procedures to obtain tax exemption certificates. The Cooperative Code extends tax exemptions to cooperatives transacting business with their members. In particular, the Code states that all cooperatives with accumulated reserves and individual savings of not more than PhP10-million shall be exempt from all national taxes of whatever nature and name.

Revenue Regulation 20-2001, issued by BIR in 2001 also states that "duly registered cooperatives dealing/transacting business with members only shall be exempt from paying various taxes." It provides that cooperatives are exempt from percentage tax, and tax on donations to duly accredited charitable institutions, and research and educational institutions. Cooperatives are also exempt from excise and documentary stamp taxes, as well as value-added tax (VAT) on purchases of goods and services.

The VAT exemption extends to the importation of machineries and equipment not available locally by agricultural and electric cooperatives. Also exempt from VAT are the importation by agricultural cooperatives of direct farm inputs, machineries and equipment, including spare parts to be used directly and exclusively in production; as well as the importation by electric cooperatives of machineries and equipment, including spare parts, which shall be directly used in the generation and distribution of electricity. But cooperatives will still be subject to a 20% tax on interest income from bank deposits and deposit substitutes, as well as the 7.5% tax on interest income derived from foreign currency deposits. Cooperatives will also be subject to capital gains tax on the sale or exchanges of real property classified as capital. -- Karen L. Lema


Transport dep't to set toll hike for North, South expressways

The Department of Transportation and Communication (DoTC) will come out within the week with the exact rate for new toll fee charges for the North Luzon Expressway (NLEX) and the South Luzon Expressway (SLEX). The Toll Regulatory Board (TRB) and the Philippine National Construction Corporation (PNCC) agreed to form a committee that would reconcile the rates for toll fees, since PNCC imposed a rate higher than that approved by TRB. Last Monday, PNCC started to collect a minimum of 52 centavos for every kilometer along the NLEX and 72 centavos for the SLEX. But Transportation undersecretary Arturo Valdez said TRB approved a toll fee rate of only 47 centavos per kilometer for both NLEX and SLEX. "The TRB has the final say as far as the rates are concerned. We'll resolve this within the week," Mr. Valdez said. He added that TRB has asked PNCC to explain how it arrived at a rate higher than that approved by the toll board.

Mr. Valdez added that motorists would be refunded if it was found that PNCC overcharged toll fees since Monday, citing Section 9 of Presidential Decree 1894 that states if the "grantee is not entitled to an adjustment, the grantee shall deposit in escrow account the excess amount collected and such amount shall be refunded" to the users of toll roads. PNCC has been asking for a rate adjustment since September 2003, using asset appraisal for 1997. But the request was denied since TRB wanted a more recent appraisal. TRB used the PNCC appraisal for 2002 to arrive at the 47-centavo rate increase. "PNCC really needs some adjustment since their 2001 petition [for rate increase] was implemented only last year," Mr. Valdez said. -- Anna Barbara L. Lorenzo


Pensioners press bid to stop SSS-Banco de Oro deal


The Philippine Association of Retired Persons, along with other groups, has filed with the court an opposition to Banco de Oro Universal Bank's motion to dismiss a complaint earlier filed by the pensioners of the Social Security System (SSS). "By filing a motion to dismiss, public defendants must be deemed to have hypothetically admitted the facts alleged in plaintiffs' complaint," the group said. The retired persons' group, along with Audio Dyne Farm Production, Inc., United Social Security System Members, Inc., has opposed the pension fund's plan to sell its 25.8% stake in Equitable PCI Bank to Henry Sy-led Banco de Oro for a downpayment of PhP1 billion with the balance of PhP12.9 billion payable via 6-1/2 year, zero-coupon, non-amortizing notes. The pensioners moved to block the deal by asking the court for a temporary restraining order and writ of injunction before June 30, the scheduled date when the deal was supposed to be finalized.

Meanwhile, the Commission on Audit said the long-term payment scheme was "not to the best advantage" of the government and SSS. "Reliable sources informed us that there was an entire cash offer to the block of shareholdings you are offering for sale. From the information at our knowledge, said cash offer appears to be more advantageous than the long-term plan," Guillermo N. Carague, the commission's chairman, said in a letter dated April 19, 2004. SSS had wanted payment through zero-coupon notes but the Social Security Commission, which serves as the SSS board, later changed the payment terms to cash instead of zero-coupon notes. Banco de Oro agreed to buy the 187.8 million shares for PhP8.169 billion or at PhP43.50 per share. This is approximately 30% above the bank's market price of PhP33.50 as of the last stock trading day of 2003. The deal was forged between SSS and Banco de Oro on Dec. 30, 2003.

In a 41-page motion filed with the Makati Regional Trial Court, Banco de Oro said the pensioners' complaint should be dismissed "outright" as the groups have no clear legal right to ask for a temporary restraining order and writ of injunction. The bank said the plaintiffs "are obviously mistaken" into believing that this case could be considered a taxpayers' suit. The groups, however, argued that they do not assert this case as a class suit. "Their [Banco de Oro] allegation relative to the nature of the instant action as a class suit is belied by the uncontroverted evidence already provided in Court... In fact, there is no need to characterize this suit as a class suit inasmuch as the plaintiffs are not claiming any compensation or damages from defendants," they said. The groups also said they find the propositions taken by Banco de Oro as "patently absurd." "It suggests that while the SSS may sue and be sued, the Social Security Commission may not be sued," they said in their court filing.


IRR for Securities Act ready by August

An inter-agency committee drafting the implementing rules and regulations of the Securitization Act of 2004 is currently awaiting the comments of the Insurance Commission (IC) and is expected to be finished for submission to the Congressional Oversight Committee next month. A ranking Securities and Exchange Commission (SEC) official said the implementing rules is being drafted by the committee composed of representatives from the SEC, the Finance department, the IC and the Bangko Sentral ng Pilipinas. "The IC is included because their approval is needed whether asset backed securities issued under the Securitization Law can be eligible as an investment for insurance companies," the official said. The official also said the implementing rules and regulations will be strict in defining the "direct relationships" between companies selling their assets for the purpose of securitization.

Under the rules, special purpose entities (SPE) that have interlocking directors or officers with a bank selling its assets will have to get the approval of the Bangko Sentral. The official added that SPEs should also remain independent, meaning that if a real estate company selling its assets for securitization belongs to a conglomerate that has a banking unit, the bank cannot sell the assets to the bank or even engage a financial institution within the group to serve as its underwriter. Congress last January approved the Securitization Act which outlines the regulatory framework allowing companies to sell assets such as loans, mortgages, receivables, and other debt instruments as new securities to raise capital.

Under the measure, assets may be sold without recourse to a special purpose corporation or in the case of banks, a special purpose trust. SPEs can then issue securities backed up by a pool of similar assets, in the process distributing risk. The bill was approved mainly to spur the housing sector since under the law only securities backed by residential mortgage and other housing-related financial instruments can be resold in the secondary market, to be carried out through secondary mortgage institutions. The setup will be similar to mortgage institutions in the United States such as the Federal National Mortgage Association or Fannie Mae and the Federal Home Loan Mortgage Corp. or Freddie Mac, lawmakers said. -- Leilani M. Gallardo


Stock exchange doesn't need OIC

Some groups yesterday criticized the appointment of an officer-in-charge at the Philippine Stock Exchange (PSE). Reacting to a disclosure by the PSE, they said it was illogical to appoint an officer-in-charge, or OIC, at a time when a new president had already been elected. The PSE board elected on Monday Francis Ed. Lim, a lawyer and incumbent director, as the seventh president of the bourse to replace Cayetano W. Paderanga, Jr. who resigned on June 9. Pending Mr. Lim's acceptance which will be known in a month, the board appointed director Peter Favila as OIC.

A source who requested anonymity said Mr. Favila's appointment did not make sense. "The exchange survived without an OIC for almost a month and it was running fine without one. Why do we need an OIC now?" The source said there are suspicions the appointment could be a reward for Mr. Favila in exchange for his support of Mr. Lim's presidency. He said the chief operating officer or senior vice-president of the exchange could act as OIC if Mr. Paderanga decided to leave before Mr. Lim accepts the post. "The exchange could have at least saved between PhP300,000 and PhP400,000 if the board did not appoint an OIC," the source said.

Some sources said a PSE president's salary does not go below PhP500,000 a month. However, there were no documents to support this claim. Joey Roxas, president of Eagle Equities, said if there was any truth to the accusation, the board has to take responsibility. "The board should be fired for being remiss on their fiduciary duty to protect the stockholders." BusinessWorld talked to Mr. Favila for his reaction but the exchange's OIC simply laughed off the accusation. "Let us put an end to this. It is not helping the country in any way," he said. -- Roulee Jane F. Calayag


Bourse picks new president

Philippine Stock Exchange (PSE) director Francis Ed. Lim was elected yesterday as the bourse's seventh president, to replace outgoing bourse chief Cayetano W. Paderanga, Jr. Majority of the board of directors elected Mr. Lim, and PSE chairman Alicia Rita M. Arroyo said the vote affirmed the board's confidence in him when he chaired the PSE Governance Committee. "Being elected as president is an honor with an awesome responsibility," said Mr. Lim, who has 30 days to either accept or turn down the post. He told reporters he planned to withdraw as co-managing and senior partner of the Angara Abello Concepcion Regala & Cruz Law Firm (ACCRA Law), or take a leave without pay if he would accept the PSE presidency.

The 49-year-old lawyer has been with ACCRA since his graduation from law school in 1981. He was out of the company only when he worked for four years in Washington, D.C. "[The PSE presidency] is a major shift, but I will make the decision myself at the end of the day," he added. Mr. Lim was instrumental in the retention of the Philippines in the California Public Employees Retirement System (CalPERS) "Permissible Emerging Markets" list in April. As an independent director of the PSE for two years, Mr. Lim is familiar with the workings of the organization and its constituents.

Prior to his election, he was chair of the PSE Governance Committee, where he implemented steps to eradicate the perception of the bourse as an old boys' network. He was also involved in the technical work leading to the enactment of the Secuurities Regulation Code (SRC), and a leading expert in implementing this law. If Mr. Lim were to acccept the presidency, he will revisit the rules of the exchange to make them investor-friendly, work at asserting the bourse's status as a self-regulatory organization (SRO), and educate brokers and listed companies operating under a vastly different legal system. "The revision of the rules has started already. We will also clarify with the Securities and Exchange Commission our SRO status by redoing and implementing the rules," he said. "There has to be a closer coordination. It is a two-way thing: granting us independence and our proving that we are responsible."

Small and medium enterprises as well as the mining sector will also be given a boost under Mr. Lim's leadership. The exchange's sales volume will also be improved. "We will improve both quantity and quality of the sales volume," Mr. Lim said. The Ilocano lawyer from Cagayan also dismissed reports that the PSE board was divided. "The board has directors who have strong convictions and who are able to articulate their beliefs, but it does not mean that we have a fractious board," he said. "There is a common thread for reforms among us and we will do that at the earliest time. We will set out clear and fair rules for the brokers and the investors," he added.

Nancy Gallego, secretary to Mr. Lim at ACCRA Law for eight years, said he was a disciplinarian, fair, and a thoughtful boss. "He is just, hardworking and intelligent. He treats everyone -- even the rank-and-file -- fairly." A husband to a fellow lawyer and a father to three boys and one girl, Mr. Lim spends the weekend with his family and at the golf course.

Lawyer Rio Manibog, Senior Partner at ACCRA Law and Mr. Lim's golfing buddy, said his election as PSE president would be beneficial to a fragmented institution. "As a team player who is known to exercise independent judgment in consonance with the dictate of fairness, Atty. Lim is expected to unify and revitalize the PSE," said Mr. Manibog. Mr. Lim vowed to "leave no stones unturned" when he accepts the post. -- R. J. F. Calayag


Exports up for 6th month


'...the good times have returned.' -- Ernesto Santiago, executive director of Semiconductor and Electronics Industries in the Philippines, Inc.

Export earnings rose for the sixth straight month in May as the United States, Japan, and Europe bought more Philippine goods, particularly electronic products. In fact, exports that month enjoyed their biggest growth since November 2002, on the back of rising demand from abroad. "We could be experiencing the good times now, meaning the global market is picking up," said Ernesto Santiago, executive director of Semiconductor and Electronics Industries in the Philippines, Inc., the umbrella organization of local electronics companies. Export receipts in May surged by 15.3% year on year to $3.259 billion from $2.827 billion. It grew 8.9% in April.

(F.O.B. Value in Million U.S. Dollars)
Top--10 Exports Commodity Jan-May 04 Jan-May 03
Electronics Components 10278.52 9506.97
Articles of Apparel and Clothing Accessories 838.95 884.33
Other Products Manufactured from Materials Imported 251.14 205.25
Petroleum Products 116.57 213.10
Ignition Wiring and Other Wiring Sets used in V. A. S. 237.67 195.66
Coconut Oil 240.95 201.40
Cathodes & of Refined Copper 158.77 114.13
Woodcrafts and Furniture 163.05 168.68
Bananas (Fresh) 132.22 131.05
Metal Components 120.95 98.05

* V.A.S. - Vehicles, Aircrafts and Ships
Source: NSO

The electronics sector's export earnings growth was also its biggest since December 2002, the National Statistics Office reported yesterday. Some analysts said the country benefited from strong industrial activity in the US and other countries.

The US Institute for Supply Management's factory index, a gauge of manufacturing, held close to a 20-year high in June, according to a Bloomberg report. Likewise, "consumer confidence in the US is the highest in two years, a Conference Board Survey showed last week," said the report.

These numbers indicate "our exports are very much influenced by the status of the US economy or the US economic recovery," said Erico Claudio of Unicapital Securities. Export earnings for January-May totaled $15.42 billion, up by 8.6% from $14.20 billion in the same period last year. The Philippine Economic Zone Authority (PEZA) also said its export earnings grew by 36% in five months to May to $12.63 billion, from $9.31 billion in the same period last year.

In May, the US, the world's largest economy, spent as much as $630.57 million on Philippine merchandise exports, a big 43.9% leap year on year from $438.1 million. The country's electronic components was the growth driver of the export industry in May. "The growth of the electronic sector, which is bigger than the overall sector, pulled up the industry," Mr. Claudio said.

After a series of single-digit export earnings growth since the start of the year, receipts from electronic products in May rose by 18.7% year on year to $2.164 billion from $1.824 billion. "As we have said before, the good times have returned," Mr. Santiago added. The electronics sector accounted for 66.4% of total export earnings in May, with semiconductors dominating other major groups of electronic products at 44.7%. Semiconductor earnings in May also went up by 11.9% year on year to $1.456 billion from $1.301 billion. The Philippines supplies 12% of global semiconductor requirements. "The issue now is how to sustain the growth," Mr. Santiago said.

As for other electronics exporters in Asia, sales have been multiplying because of rising production and spending in the biggest economies. South Korean exports soared to a record last month, while shipments from Thailand and Taiwan reached all-time highs in May. Meanwhile, higher sales of branded products and stronger demand from Europe resulted in an additional 2% increase in overseas earnings for articles of apparel and clothing accessories in May. Aggregate receipts that month hit $179.63 million, from last year's $176.2 million. But year-to-date figures were lower. Earnings from exports of articles of apparel and clothing accessories for five months to May fell by 5.13% year on year to $838.9 million from $884.3 million.

Coconut oil was also back on the list as the country's third top export earner, with revenues of $67.08 million in May, down by 0.4% year on year. Ignition wiring sets and other wiring sets used in vehicles, aircraft and ships made $54.33 million, up by a substantial 59.5% year on year in May from $34.07 million. Receipts from the top 10 exports alone hit $2.663 billion that month, or 81.7% of total export income. These include cathodes and sections of cathodes of refined copper, other products manufactured from materials imported on consignment basis, woodcrafts and furniture, metal components, fresh bananas, and pineapple and pineapple products.

By commodity type, manufactured goods were the top export earners. In May, their sales rose by 17.6% year on year to $2.878 billion from $2.447 billion. Manufactured goods accounted for 88.3% of total receipts. Agro-based products earned $180.06 million, or 5.5% of total export revenue. Earnings fell by 0.04% year on year from $180.12 million. An expert recently said Philippine agricultural exports particularly to Japan have been declining because of rising production costs. Japan prefers to import from countries that sell cheaper products. While sales of mineral products went up by 40.2% year on year to $95.20 million, receipts from exports of special transactions hardly changed at $91.05 million. Petroleum products and forest products earned $12.60 million and $2.72 million, respectively.

Meanwhile, trade reports showed the Philippines followed the export growth trend in the Association of Southeast Asian Nations. The second biggest market for Philippine exports in May was Japan with an 18.3% share. Export receipts totaled $596.25 million, up by 5.1% year on year from $567.31 million. Hong Kong was the third biggest market for the month with $317.27 million in export receipts, or 9.7% of the total. Earnings went up by as much as 45.6% year on year from $217.98 million. Other top markets in May were the Netherlands, $247.95 million; Malaysia, $233.13 million; Singapore, $232.12 million; Taiwan, $205.16 million; People's Republic of China, $157.41 million; Thailand, $119.31 million; and Germany, $96.90 million.

Even with the good start in the second quarter, analysts are still on a wait-and-see as the new administration addresses the issue of sustaining industry competitiveness, particularly the electronics sector. "We are expecting they will move forward the concerns of the industry towards achieving the industry's call of maintaining and sustaining the competitiveness of the biggest export industry in the country," Mr. Santiago said. He expects industry exports earnings to grow by 10% this year. But for Mr. Claudio, even as the trend was towards recovery, it would be safer to assume that the export growth rate for the first six months would be the same as the next six months. "I don't think the 15% [growth] could be sustained for the rest of the year. I think we can see some minor disappointments in the next couple of months," he said.

Meanwhile, Trade and Industry Secretary Cesar A.V. Purisima said the double-digit export growth in May was a "good omen" for President Gloria Macapagal-Arroyo's new term, noting that industries were clearly stepping up production for the international market. "If this double-digit growth is sustained in the next seven months, the 10% export target for this year will be met or even be exceeded. Moreover, increased export would mean more job opportunities as factories expand operations," he said. Mr. Purisima credited increased consumer confidence in the US for increased shipments of DVD players, mobile phones, and laptops. He also highlighted the fact that garments exports, the country's second biggest export earner next to electronics, grew by 2% in May even as garments quotas providing guaranteed access to the lucrative US and European markets were scheduled to be phased out by the end of the year. "This is the first positive growth since June 2003, which reveals that the Garments Industrial Transformation Plan [spearheaded] by the [Garments and Textile Export Board] is on the right track," Mr. Purisima said.

The transformation plan aims to lower costs and increase productivity in the garments sector to allow it to compete globally under a quota-less regime. Mr. Purisima noted that exports to the US jumped 44% while double-digit growths were recorded for Asian destinations such as Thailand, Singapore, Malaysia, and Hong Kong. He said economic ties with these countries would be "strengthened" to ensure "steady and reliable markets" for Philippine goods. "Our close relationships with the US and our Asian neighbors are paying dividends as we see more of our consumer goods being shipped to these countries," he said. Mr. Purisima added that exporters were sending "signals that the country is on the road to economic recovery." Sergio R. Ortiz Luis, Jr., head of the Philippine Exporters Confederation, shared the optimism. "With this, I'm very hopeful export will reach 10% [growth]," he said in a phone interview. Mr. Ortiz Luis said it was even possible to exceed the target with only three months of successive growth figures, which would "pull the average." He added it was "obvious" the positive figures pointed to an improvement in the economy. "Exports account for more than 50% of gross domestic product [GDP]. Every 3% growth in exports translates to 1% growth in GDP," Mr. Ortiz Luis said.

Also yesterday, the National Economic and Development Authority (NEDA) said the government was on track to meet its 10% export target for 2004. "This [May increase] is the first double-digit increase posted since December 2002. This can be attributed to the robust growth in the country's top three export products," said NEDA chief and Socioeconomic Planning Secretary Romulo L. Neri. He said the expansion in electronic equipment and parts and manufactured electronics products was consistent with expectations that consumer electronic products would continue to experience growth. But Mr. Neri said the export increase was due to the launch of the Garments and Textiles Executive Board's Garments Industrial Transformation Plan, which he said helped manufacturers cope with the phaseout of quotas by January 2005. "The plan recognizes the need for the domestic textile sector to become more competitive at the same time that tariffs on imported textiles are kept low," he said.

Mr. Neri pointed to the global surge in automobile and transport demand as the main factor behind the 25.8% increase in shipments of machinery and transport equipment for May. University of the Philippines economist and former NEDA chief Felipe Medalla said the growth in merchandise exports for the month was "expected" given the recovery of Western markets. "[The growth] is not surprising because you have the recovering Western market [which include] the United States," Mr. Medalla said. He also said the global market would continue to expand in coming months given the strength currently being displayed by major economies such as China, Japan, US and Europe. "For the Philippines to benefit from this expanding global market, the government [should] create a more stable political and economic enviroment," he said. -- with reports from Felipe F. Salvosa II and Jennifer A. Ng


Inflation rises in June on oil price hike


Prices of goods and services rose more than expected in June, posting their biggest increase in more than two and a half years, on the back of rising oil prices since the start of the year. The country's headline inflation rate, or the annual increase in the consumer price index (CPI), rose sharply to 5.1% in the year through June, its highest since November 2001, up by 0.6% from 4.5% in May. Last month's rate exceeded the market's consensus forecast. Private analysts widely expected inflation in June to hit 5%. Government projected a lower rate.

Inflation rates were based on 1994 prices. But based on the 2000 price series, headline inflation went up by 0.7% to 5.4% in June, from 4.7% in May. "It's [inflation] at the higher end of the forecast range. Inflation in June is already close to the higher end of the government's full-year forecast, so that's going to pull up the average for the year-to-date inflation and may point towards a further uptrend in inflation in the coming months," said Jose Vistan, economist at AB Capital Securities, Inc.

Inflation has risen steadily this year, hitting 4.5% in May from 4.1% the previous month. Last March, inflation was 3.8% from 3.4% in January and February. Last month's figure also pulled up inflation for January-June, which averaged 4.1% year-on-year, still within the 4%-5% full-year ceiling of the government. Mr. Vistan said the higher price for oil was the main factor behind the spike in consumer prices.

In early June, local oil companies raised fuel prices for the seventh time this year, to as much as 25% higher than year-ago prices. Diesel, gasoline, and kerosene prices went up by PhP0.90 to PhP1.05 per liter, to reflect high regional acquisition costs. Since January, gasoline prices have increased by PhP4.20 to PhP4.35 per liter, while diesel prices increased by PhP3 to PhP3.15. Consequently, the government allowed buses and jeepneys to raise minimum fare by PhP1.50 starting mid-June. "There are some more inflationary pressures in the coming months. One is the adjustment in minimum wage, which is a cost-push inflationary factor. Higher wages would, of course, mean higher cost for the business sector, which may decide to pass on the higher cost to the prices of their goods and services," Mr. Vistan added.

Starting July 10, minimum-wage workers in Metro Manila will get an additional PhP20 per day as emergency cost of living allowance. This will bring Metro Manila's effective daily minimum wage to PhP300 from PhP280. The National Statistics Office said the rise in June inflation was traced to higher prices of services, fuel, light and water (FLW), and housing and repairs (H&R). Service costs, which include transport fares and fuel pump prices, rose by 8.3% in June from a 5.3% annual increase in May. In addition, inflation rate for H&R rose to 3.7% from 3.4%, miscellaneous items to 2.0% from 1.9%, and for FLW to 6.1%.

Meanwhile, inflation rates for food, beverages and tobacco (FBT) as well as clothing both slowed to 5.0% and 2.1%, respectively. On a monthly basis, the consumer price index rose by 1.5% in June from 0.5% in May. Among commodities, services registered the biggest price increase of 5.1%, mainly attributed to tuition fee and transport fare hikes last month. Inflation of prices of FBT items climbed to 0.9% from 0.7% in May; H&R to 0.5% from 0.2%; FLW items, 2.2% from 0.6%; and miscellaneous items, 0.4% from 0.2%. Price increases in clothing items 0.3%.

Contrary to observations that June's inflation was just a blip, Mr. Vistan said he expected a rising trend, also because of the effect of a low base from 2002 and 2003. Thus, he said, Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) was under pressure to tighten monetary rates. "I think there are three things that are putting pressure in the monetary policy. One is the recent hike in the US interest rates, second is the recent strength in the US dollar against the (Asian) regional currencies, and the third is this recent spike-up in inflation," Mr. Vistan said. "But BSP may try to wait out. If the July inflation number confirms this is a blip, then it will not do anything. But if we see another month above 5%, then that may force the hand of the BSP to act," he added.


Despite the higher-than-expected inflation rate for June, BSP said it would keep its yearend target of 4%-5%. BSP Governor Rafael B. Buenaventura said monetary authorities expected the fast rise in consumer prices to be temporary. "We do not expect this sharp spike in consumer prices to endure for a long period. Such acceleration in the headline inflation in June was driven mainly by the increase in food items, particularly fish and meat, as well as in fuel, rentals as well as services, including educational services," Mr. Buenaventura said in a statement. He said the upswing in food prices was due to adverse but temporary weather conditions. "Once importation of feedgrains and selected meat products is given due course in the second half of 2004, the supply will ease and food prices are expected to stabilize at lower prices," he said.

Similarly, he noted that the increase in tuition fees, was seasonal as it merely coincided with the school opening month of June. Rental increases, meanwhile, were driven by the unregulated sector that took advantage of the increases in oil prices, transport fare, and other basic commodities. By nature, he said the direct impact on inflation of these supply-side factors was outside the sphere of influence of monetary policy. The central bank has kept policy rates unchanged at 6.7% for overnight borrowing and 9% for overnight lending. The BSP chief, however, conceded that the PhP20 increase in the cost of living allowance in Metro Manila and other pending wage hike petitions could fuel inflationary expectations. "Going forward, the stance of monetary policy will continue to emphasize caution to ensure price stability yet with the flexibility of helping sustain economic activity," he said.

The National Economic and Development Authority (NEDA) also said it remained confident that the inflation target for 2004 was attainable. Economists also said inflation was still manageable and that the higher rate was "no cause for alarm", provided the government will be able to manage its finances effectively in the coming months. Socioeconomic Planning Secretary and NEDA chief Romulo L. Neri said the government could keep its 4%-5% inflation target for the whole year as the average inflation for the first semester was only 4.1%, using the 1994 basket. But he also said the inflation rate could scale up in coming months as demand for higher wages and the electricity price increase hits the price system. "The PhP20 increase in the National Capital Region's daily minimum wage in July, wage petitions from six other regions, and power rate hike due to the increase in Napocor generation charges are expected to significantly influence inflation," Mr. Neri said.

These factors, he said, can push the inflation rate to reach the upper limit of the government's target for the whole year. "Inflation for 2004 is most likely to approach the upper limit of the target. Nevertheless, the BSP will monitor developments and use monetary policy tools if necessary," Mr. Neri said. He also said the National Price Coordinating Council would monitor markets to make sure there would be no price manipulation of basic commodities. Mr. Neri said food and oil prices would stabilize in coming months as oil supply constraints that pushed up prices in the international market was expected to ease with the decision of the Organization of Petroleum Exporting Countries to expand its production in August. Food prices, he said, will be stabilized by the government's importation of chicken and corn to augment the harvest of crops for the year.

The Department of Agriculture authorized the importation of chicken in the late May to ease the tightness in supply and stabilize the price of the produce, which shot up to as much as PhP115 per kilogram last April. Economists, for their part, said that the inflation rate for June was no cause for alarm. Former NEDA Director-General Felipe Medalla said the inflation rate was manageable. "The [inflation rate] is to be expected [although] I don't take it as a sign of uncontrolled inflation," Mr. Medalla said. He said the monetary policy of BSP should be more conservative, and that the government should manage the deficit and refrain from resorting to more borrowings. "Money creation should not be excessive. BSP should curtail the creation of more credit. The government should borrow less and spend less," Mr. Medalla said. He also prescribed the need to improve the productivity of Filipino firms and to improve the local transport system. -- with reports from Iris Cecilia C. Gonzales and Jennifer A. Ng


Justice dep't backs SSS-Banco de Oro deal

The Department of Justice has found "nothing legally objectionable" with the draft of the share purchase agreement and the letter of intent between Social Security System (SSS) and Banco de Oro Universal Bank. In a letter dated April 29, Acting Justice Secretary Ma. Merceditas N. Gutierrez said the department agreed with the Commission on Audit's (CoA) opinion that the controversial sale of SSS' 25.8% stake in Equitable PCI Bank to the Sy family's Banco de Oro did not require public bidding. CoA, through its chairman, Guillermo N. Carague, said CoA Circular No. 89-296 stated that the disposal of merchandise or inventory held primarily for sale in the regular course of business was exempt from the requirement of disposition primarily through public auction or public bidding. It opined that the transaction between SSS and Banco de Oro qualified as a stock exchange transaction. "Nevertheless, since activities in the stock exchange offers to the general public stocks listed therein, the proposed sale, although denominated as 'negotiated sale' substantially complies with the general policy of public auction as mode of divestment. This is so for shares of stocks are actually being auctioned to the general public every time that the stock exchange are openly operating," Mr. Carague said.

The Justice department said it has "no reason to disagree" with CoA's opinion since the issue whether the subject transaction is covered by CoA Circular No. 89-296 is "best left to its [CoA's] determination by reason of its familiarity with the intent and purposes of the issuance and the extent of the application thereof." "Moreover, the resolution of the issue raised would necessarily involve a review of the action taken or doen by the officials of the CoA, an independent constitutional body, which is beyond the revisory authority of the Secretary of Justice. By established policy and precedents, this department has desisted from passing upon the official actuations and/or rulings of any government official over whom this department has neigher supervisory nor revisory authority," Ms. Gutierrez said.

The legal opinion and the CoA report are both part of the regulatory requirements set in the letter of intent to sell signed by SSS with Banco de Oro last December 30. The deal was supposed to close last June 30, "unless extended by mutual agreement of the parties." However, the Philippine Association of Retired Persons (PARP) sought a temporary restraining order from the Makati Regional Trial Court to prevent SSS and Banco de Oro from consummating the agreement selling 187.8 million Equitable PCI shares.

The purchase price, which would have been PhP8.169 billion at PhP43.50 per share, would be approximately 30% above the bank's market price of PhP33.50 as of the last stock trading day of 2003. Furthermore, the Justice department did not see any legal impediment to the approval of the letter of intent in executive sessions, without prior consultations. The Social Security Commission, which serves as the SSS board, validly approved the letter of intent in executive session without prior consultations with organizational units in the SSS "to ensure confidentiality and to avoid insider trading." "Considering the significance of the transaction involved, the need to ensure that no material nonpublic information might be disclosed far ourtweighs the appropriateness of conducting prior consultations, which in our view, is merely directory and not legally indispensable. Moreover, since the general conduct of the operations and management functions of the SSS is vested in its president, she has the competence to agree, based upon her prudent judgment, on the terms of the subject sale," the letter read.

SSS said the sale of its shareholdings in the bank should stem further bleeding of the fund's stocks. Considering the 25.8% stake is equivalent to four board seats, Banco de Oro will gain control over the Antonio Go-led bank if the sale pushes through. Saying that no law was violated in the sale, Banco de Oro has asked the court to dismiss the case, arguing that the plaintiffs have no clear legal right to ask for a temporary restraining order nor for writ of injunction. PARP, along with Audio Dyne Farm Production, Inc., and United Social Security System Members, Inc., filed the case against SSS and Banco de Oro, arguing that the transaction would provide bad precedent and would violate public policy on the disposition of assets. -- Ruby Anne M. Rubio

Why Smart and Piltel cannot wed

Pilipino Telephone Company, or Piltel for short, currently the darling of punters in the local stock market, presents a conundrum to analysts. The conundrum it presents has certainly not put off certain executives of Hong Kong-based First Pacific Co. Ltd., the majority owner of Piltel's parent company, from purchasing blocks of Piltel shares a few months ago. On the other hand, equity analysts and professional fund managers have been extremely wary of recommending or taking position in the stock despite the news that Smart Communications, Inc., the country's largest mobile phone operator, has purchased Piltel's debt from its creditors. Smart also acquired, for PhP2.07 billion , the Piltel equity holdings of Philippine Long Distance Telephone Co. (PLDT), represented by PLDT 59.3 million Series K preferred shares, each of which may be swapped for 170 common shares of Piltel. Upon conversion of these PLDT preferred shares into Piltel shares, Smart will end up owning 92% of Piltel.

In essence, Smart's payment of PhP2.07 billion for 92% of Piltel values the company at only PhP2.25 billion. This is way below the market's current valuation of PhP3.31 billion. Said another way, the market is overvaluing Piltel as against the equity valuation inherent in Smart's purchase of the Piltel shares of PLDT. What would Piltel have to do to justify the market's higher valuation? Or looking at it from another point of view, what would Smart put into its recent acquisition to rationalize the market's feeding frenzy on Piltel shares?

Driven by earlier rumors that Smart would eventually purchase and merge with its sister company (Piltel), the latter's stock price has so far zoomed 127% to a recent high of PhP2 per share, from last year's closing of PhP0.88 per share. The Philippine Stock Exchange composite index, a proxy measure for the general market's performance, has risen at a more pedestrian pace of 12% over the same period. One other way of looking at the valuation of Piltel would be to compute its price-to-subscriber ratio -- a bit similar to the famous price-to-earnings, or P/E, ratio, but using the subscriber base rather than earnings as the divisor (the technical term for this ratio is price-per-pop, wherein "pop" stands for population).

At Piltel's current price of about PhP2 per share, equivalent to a market capitalization of PhP3.3 billion, an investor would be paying a little over PhP1,100 for every subscriber to Piltel's mobile phone service. In comparison, at their respective current stock prices, an investor pays almost PhP13,800 for every Smart subscriber and less than PhP12,300 for every Globe Telecom subscriber. Using this measure, Piltel certainly looks cheap, except for the caveat that the revenue cash flows derived from each Piltel subscriber, on average, would be much less than the cash flows from a Smart and Globe subscriber. But the real thinking among speculators, driving them to push Piltel's share price ever higher, is that Smart would eventually consummate the corporate marriage with Piltel, thus accomplishing a backdoor listing for the company. Such possibility has been denied by both Smart and PLDT executives. Piltel executives have no say on the matter precisely because the company has no staff or managers -- it has outsourced its fixed-line operations to PLDT and its mobile phone service to Smart. It really does not make much sense at this point for Smart to merge with Piltel. For one thing, a public listing of Smart's shares, either through the back door or the front door, would render PLDT into an unwanted orphan stock -- leaving it high priced, with not much growth prospects and with the unattractive fixed-line side of the business.

Furthermore, Smart's acquisition of 92% ownership and the debt load of Piltel already raised its risks, as both the biggest equity owner of Piltel as well as its largest creditor. The palpable risks include the usual business risk (that Piltel would go out of business) as well as credit and default risks (that Piltel's cash flows won't be enough to service its remaining debt load). But these risks are kept at arm's length without a merger, thus limiting any potential damage to Smart's financial books. A merger would allow all these risks to enter Smart's books. So, what was the Smart-Piltel deal all about if it wasn't about a merger?

It all goes back to the billions of pesos worth of net operating loss carryover (NOLCO) in Piltel's books that Smart, which has been making tons of hay under the bright sunlight provided by ubiquitous Filipino SMS texters, uses to put a lot of these profits out of reach of the Bureau of Internal Revenue. Smart's need for a tax shelter became even more pressing following news that the second coming of the Gloria Macapagal-Arroyo administration intends to impose a new tax on mobile phone text messaging. But in order for Smart to use Piltel's NOLCO without benefit of a merger, it would have to pass through its own revenues through the subsidiary. This can be done through an existing sharing agreement or a new marketing agreement with the subsidiary.

Thus, while Piltel's NOLCO is being depleted, Piltel will be booking hefty profit growth. At the end of the year, however, Piltel would need to declare all the profits as cash payouts to shareholders, thus returning to Smart what ought to have been theirs from the start. Notice that there would be a leakage of around eight percent of the profits that would go to minority shareholders of Piltel. The amount of the NOLCO, particularly its tax effect on Smart's taxable income, ought to be viewed as having been paid for by Smart when it acquired most of Piltel's debt at a discount. Once the NOLCO is gone, however, Piltel would have served its purpose. At that point, Piltel would be back to square one: It must be able to earn its keep on the merits of its own business. If not, then it may yet get the sleep of the corporate dead that it barely escaped a few years ago.