October, March 06, 2004
High Court halts sale of Equitable PCI stake
Electronics rebound boosts exports
Finance dep't bucks IMF's advice on deficit
Gov't hikes inflation target
49 state-owned firms seen posting PhP131-B losses
Nenaco rehab plan approved
Philippines risks ratings downgrade
Break down economic disparities -- Mahathir
UCPB clinches idle asset deal worth 13.6B pesos
Three-year T-bond rate down to 11.254%
BPI fails in its Indonesian bank bid
PSE puts on front burner efforts to entice more firms to go public
BayanTrade says deals reach $500-million mark
PhilRatings reviews Filinvest Land rating
Phisix slips; market stays upbeat

October, March 05, 2004
IMF urges new taxes, drastic budget gap cuts
Palace orders gov't streamlining
RP outlook raised, but oil to check 2005 growth
Stock market posts best close since Feb. 2000
Mahathir, GMA to address Philippine business meet
San Miguel weighs Del Monte purchase
DoE expects no letup in oil price increases till yearend
Palace cracks whip on bleeding state firms
Tighten rates if needed, IMF urges central bank
Peso up on stocks, low dollar buying
Asian bond spreads stronger
Banco de Oro sets share price at $2
China Bank profit at 1.95B pesos as of August
SEC allows Ayala Corp. to hike bond size to PhP7B from PhP5B
National Steel SPV clearance illegal - law firm
Maynilad creditors want independent auditor, consultant to review rehab plan
$50-M funding for train system gets BSP clearance
Asia Brewery workers stage strike
Ginebra profits edge up 8% on marketing blitz
Phisix hits 4-year high, tops 1,800





High Court halts sale of Equitable PCI stake


The Supreme Court yesterday stopped the Social Security System (SSS) from selling its 25.84% stake in Equitable PCI Bank on October 20. In a two-page resolution, the high tribunal en banc also ordered the pension fund, the Social Security Commission (SSC) and the Sy-controlled BDO Capital & Investment Corporation to submit their comments on a petition by Senator Sergio R. Osmeña III within 10 days. "The Court hereby requires the parties to observe the status quo prevailing before the issuance by the Social Security Commission," the court said.

On Aug. 18, the Commission, which serves as the SSS board, approved the move to subject the shares to a "Swiss Challenge" where the result is subject to the right of Banco de Oro's wholly owned investment house to match the highest bid. Mr. Osmeña last week questioned the mode of the sale before the court, alleging it may result in the government losing at least PhP3 billion from the transaction. The legislator claimed the 26% outstanding capital stock may be sold for as much as PhP60 instead of only PhP43.50, the offer of BDO Capital, if properly bid out Mr. Osmeña, together with Senators Juan Flavier, Rodolfo Biazon, Alfredo Lim and Ana Consuelo Madrigal, elevated the issue to the Supreme Court. They asked the court to prevent SSS from selling the shares through a Swiss Challenge, claiming it is "simply a scheme to sell the shares to BDO Capital without a public auction." "The Swiss Challenge is not a mode of bidding but a mechanism for awarding government contracts on negotiated basis," Mr. Osmeña said in a statement. He said a public bidding is the fundamental mode of selling government assets. "By using a Swiss Challenge, SSS may even have violated penal and anti-graft statutes," he added.

The legislator chided SSS for insisting on pushing the supposedly dubious sale method despite questions over its legality. "It is a case of granting BDO Capital the privilege of purchasing the shares at its own price even if other buyers are willing to pay a higher price," Mr. Osmeña said. Mr. Osmeña said even the bidding rules have provisions that unduly favor BDO Capital and even discourage the participation of other interested buyers. These rules include that BDO Capital is allowed to match the second highest bid under certain circumstances; SSS is bound to automatically offer the shares to BDO Capital in case there are no bidders or prospective bidders do not qualify; all bidders, with the exception of BDO Capital, must acknowledge that title to the shares may be affected by at least two civil cases pending before the Makati and Mandaluyong trial courts; and all bidders, except BDO Capital, are required to waive its right to sue SSS for any defect or irregularity in the sale.

BDO Capital, Mr. Osmeña also noted, has not paid any consideration for the preferential right to match. In an earlier pleading filed at the Mandaluyong Regional Trial Court, the SSS said there is still "no perfected and binding agreement" between the government agency and BDO Capital over the shares. The investment house, meanwhile, stressed that a public auction is not necessary in the sale of the Equitable PCI bank shares because public bidding is not required in the disposal of merchandise or inventory held primarily for sale in the regular course of business. Banco de Oro was originally to pay a downpayment of PhP1 billion for the SSS stake in listed Equitable PCI. The total value of the SSS Equitable PCI stake was estimated at PhP13.9 billion, which the SSS would receive after six and a half years. The balance of PhP12.9 billion will be paid through six and a half-year zero-coupon, non-amortizing notes. The SSC later agreed to cash payment terms, and the SSS agreed to sell the 25.84% stake in Equitable PCI for PhP8.169 billion or at PhP43.50 per share. The stake is equivalent to four board seats. The deal was supposed to close no later than June 30 "unless extended by mutual agreement of the parties."

Atty. Jose A. Bernas, the senators' legal counsel, said the Supreme Court moved to halt the sale because it has been "quite concerned" about government contracts. "If the court does not interfere, the transaction would provide a bad precedent and would violate public policy on the disposition of assets," he told BusinessWorld. Eduardo V. Franciso, executive vice-president of BDO Capital, said this is "another temporary setback but that does not deter us from the ultimate goal." "We have not seen the ruling. We still have to get a copy of it. At the end of the day, we will still protect our interests," he said. "From the start, we entered into a legally binding agreement with SSS. That is why we brought them to court. They should have delivered the shares to us. We will see what we can do," Mr. Francisco told BusinessWorld. Banco de Oro has said it "has entrusted the future" of its bid in the country's third largest lender and will await a decision by the Mandaluyong Regional Trial Court. In June, BDO Capital asked the court to compel the SSS to execute the Equitable PCI share sale and purchase agreement and immediately transfer its rights, title and interests in the shares. The Philippine Association of Retired Persons, meanwhile, sought a temporary restraining order from the Makati Regional Trial Court to prevent the consummation of the agreement.



Electronics rebound boosts exports


A rebound in electronics shipments boosted Philippine merchandise exports in August by 13.7% to $3.415 billion, the highest for the year, from $3.003 billion in the same month last year. The month's performance -- which followed a disappointing July -- boosted expectations that a 10% export growth target would be met, but some analysts said the specter of rising oil prices could dampen the rest of the year. July exports growth was the lowest so far for the year, with shipments at $3.105 billion, up a mere 3.2% from the $3.009 billion in July 2003. That helped inflate the trade deficit by 37%. The month of August, said to AB Capital Securities research head Jose Vistan, is when manufacturers start stockpiling inventories ahead of the fourth-quarter peak season for consumption. "In order not to risk running out of inventories, I think they are already stacking up on supplies in anticipation of a strong fourth quarter, globally," he said.

For the eight months to August, exports totaled $25.255 billion, 8.5% more than the yearago $23.277 billion, the National Statistics Office (NSO) reported. According to Erico Claudio of Unicapital Securities, 8.5% is not a bad figure but added that at this pace the government's 10% growth forecast appears to be on the high side. "It is not going to be easy. You have to bring up the 8.5% to 10%, or grow much faster than 10%," he said. "As far as I know, the US economy has slowed down, so you will have some expected slowdown here in the Philippines. Though a 10% growth is not impossible, it is still on the high side," he said. Mr. Vistan, however, thinks otherwise, saying "The global economy is going to be healthy and I think there won't be any negative events. The only problem really is the volatility of oil prices." "With the 13.7% August growth and the 8.5% total growth, I think we would be doing a little better as we move towards September and October. So, we would hit the 10% target."

Sergio R. Ortiz Luis, Jr., head of the Philippine Exporters Confederation, expressed confidence that the full year growth goal would be met. "Year-to-date I think we're hitting now between 10% to 11%, which is right on track with the target for the year [of] at least 10%. We're very happy with it," he said. Trade and Industry Secretary Cesar A.V. Purisima noted that the growth in August was the second highest recorded this year after May's 15.27%. His view was echoed by Socioeconomic Planning secretary Romulo L. Neri, who also said he is confident the country will meet its 2004 export growth target. "For this year, we expect our export growth to be at 10% to 11%. We have faith in the capability of our exporters and in the marketability of our products," Mr. Purisima said. "Our electronic and garments products will continue to pace the growth of our export sales. However, we have [also] increased our efforts to develop other market groups so that the country will not have to rely on these two product groups," he added.

The Cabinet official also said China is emerging as a major export destination, jumping to fifth place in the list of top buyers from eighth in January. "China will continue to be one of the top export markets of the country. If this trend continues, China will become one of the country's top three export destinations together with USA and Japan," he said. Mr. Purisima said emphasis will be given on products such as furniture, marine products, automotive and parts, toys, and house wares. "These industries, mostly small and medium enterprises, are being given marketing, training and product development support with the aim to enabling small firms to penetrate the export market and increase the country's manufacturing base," he said. "We remain biased toward the development of the country's export market and this is the reason why we continue to give export-oriented industries incentives through the Board of Investments and the Philippine Economic Zone Authority," he added. The government is also stepping up a campaign to help local firms obtain certifications on Good Manufacturing Practice and Hazard Analysis Critical Control Point systems which are necessary to gain access to the American and European markets.

Meanwhile, University of the Philippines economist Dr. Ernesto Pernia, however, warned that the full-year target could be threatened by rising oil prices. Mr. Pernia said the export growth was good but added that the country may "barely" reach the 10% target. He said unabated increases in oil prices tend to dampen consumer demand and investor enthusiasm in the short-term. University of Asia and the Pacific economist Victor A. Abola said the August performance was "good", considering that exports for the month usually slow down due to bad weather. "August was supposed to be a bad month because of the typhoons. Normally, exports dip during this month," he said in an interview. He also expressed confidence that the country is on track in meeting the full year target. "The impact of oil price hikes will not be felt much this year. The main effect will be felt next year. That's what we have to worry about," Mr. Abola said.

Accounting for two-thirds of total shipments, electronics exports grew 15.7% year-on-year to $2.251 billion after hardly growing the previous month. Among the major groups of electronic products, the semiconductor sector still contributed the biggest share of 46.7% to total exports, up by 14.8% to $1.596 billion from $1.390 billion in August 2003.


Value in Million U.S. Dollars)
Top--10 Exports Commodity Aug 04 Aug 03
Electronics Components 2251.48 1945.24
Articles of Apparel and Clothing Accessories 229.47 205.67
Ignition Wiring and Other Wiring Sets used in V. A. S. 87.20 46.94
Coconut Oil 49.34 42.07
Petroleum Products 41.17 62.30
Other Prod. Manufac. from Materials Imported on Consignment basis 39.37 42.72
Woodcrafts and Furniture 36.31 40.84
Metal Components 32.42 22.26
Cathodes & sec.of cathodes 30.30 23.80
Bananas(fresh) 21.91 32.04

* V.A.S. - Vehicles, Aircrafts and Ships
Source: National Statistical Office

"A 15.7% growth in the electronic sector is good, given that we are expecting the market to soften in the second half," said Ernesto Santiago, executive director of the Semiconductors and Electronics Industries in the Philippines, Inc. (SEIPI). The electronics export industry reported a first-half growth of 9.75%, which Mr. Santiago called "aggressive." Telecommunication products, meanwhile, posted a remarkable 315.5% growth but accounted for only 0.8% of aggregate exports.

Other electronic products that showed substantial gains were communication/radar, which grew 35.4%, and control and instrumentation, 35%. Medical/industrial instrumentation was the only sector that posted a decline of 40.8%. Articles of apparel and clothing accessories remained the country's second top earner with a combined share of 6.7%. Its aggregate receipts of $229.47 million reflected an 11.6% improvement from last year's $205.67 million as the country's trading partners stock up for the Christmas season. This performance likewise displays a positive shift from the performance in July which recorded a year-on-year 9.2% decline.

Also improving from the previous month's sluggish growth were ignition wiring sets and other wiring sets used in vehicles, aircraft and ships. The third biggest earner, wiring posted $87.2 million in total revenues, an 85.8% increase from $46.94 million in August 2003. The fourth biggest earner was coconut oil, with sales amounting to $49.34 million for a year-on-year growth of 17.3% from $42.07 million. Coconut oil has been the country's leading farm product over the past years, and the Philippines is the world's largest exporter of coconut oil and other coconut-based products. In contrast, revenues from petroleum products dropped 56.5% to $41.17 million from $26.3 million.

Rounding up the list of the top exports were other products manufactured from materials imported on consignment basis, $39.37 million; woodcraft and furniture, $36.31 million; metal components, $32.42 million; cathodes and sections of cathodes of refined copper, $30.30 million; and bananas (fresh), $21.91 million. Total receipts for the top 10 exports reached $2.819 billion, or 82.5% of total exports.

In line with the August exports growth, the Philippine Economic Zone Authority (PEZA) reported that actual exports for economic zones in August stood at $20.619 billion, 22.48% higher than $16.834 billion in the same month last year. Investments in August, meanwhile, generated one million jobs against 887,030 in August 2003. Despite a reported slowdown in the US economy, America remained the Philippines' primary market. Accounting for 24.8% of the country's aggregate income for the month, exports to the US were valued at $847.92 million. Receipts increased by 34.7% from last year's $629.69 million. Demand from Japan likewise went up 44.3% to $667.86 million versus $463.75 million in August 2003. The country accounted for 19.6% of total exports.

Overtaking Hong Kong as the third biggest market was Singapore, whose receipts amounted to $260.03 million or 7.6% of the total. Receipts climbed by 27.6% from $203.76 million last year. Shipments to Hong Kong, meanwhile, inched up 0.7% to $254.2 million from $252.34 million in the same month last year. Other big markets for August were China, $223.35 million; Taiwan, $171.99 million; Malaysia, $166.79 million; The Netherlands, $113.04 million; Germany $100.63 million; and Vietnam, $86.61 million. Total export receipts from the Philippines' top ten markets for August amounted to $2.892 billion, or 84.7% of the total. -- with reports from Felipe F. Salvosa and Jennifer A. Ng



Finance dep't bucks IMF's advice on deficit

The Department of Finance (DoF) is sticking to its fiscal deficit reduction schedule despite a recommendation by the International Monetary Fund (IMF) to accelerate the program. Finance undersecretary Eric O. Recto said that the IMF's recommendation to "front-load" or accelerate the fiscal deficit reduction program would limit the government's flexibility in spending for much needed infrastructure. "We will maintain that we also need to use revenues to spend for productive capital expenditures (CAPEX), which will help the economy grow," Mr. Recto said. The Washington-based Fund is pushing for the acceleration of the fiscal deficit reduction program, arguing that markets were looking for strong initial evidence of the government's ability to tackle its fiscal problems.

In a recent report, the IMF said that the government should have a large part of its deficit reduced in 2005 and 2006 to make the 2009 balanced budget goal easier to attain. The Fund favored a reduction in the deficit of the non-financial public sector -- referring to the national government itself and the government-owned and controlled corporations -- by 2.5 percentage points of GDP by 2005. In contrast, the IMF dubbed as "insufficiently ambitious" the government's plan to reduce the deficit in a linear fashion or by about 3/4 percentage point of gross domestic product (GDP) each year from 2004 to 2009. The IMF team also argued that fiscal measures were likely to be easiest in the opening period of the new administration.

The government incurred a deficit of PhP199 billion last year and hopes to contain the deficit at PhP197 billion this year. Mr. Recto said the government agreed with the need to front-load the revenue-raising measures by pushing for their immediate passage this year. He said the government agreed with front-loading the deficit reduction program because it will try to get as much of the measures passed "up front." The Macapagal-Arroyo administration is asking Congress to pass eight tax measures estimated to raise PhP83 billion yearly. These include a two-step increase in the value added tax (VAT) rate, a shift to gross income taxation and tax amnesty. The IMF, however, shot down the government's proposal to grant tax amnesty for individuals and corporations and the planned shift to gross income taxation. Mr. Recto said the government is still counting on the passage of at least four measures this year. These include measures that will grant a general tax amnesty, institutionalize a lateral attrition system, rationalize fiscal incentives and a higher excise tax on alcohol and tobacco products. -- Iris Cecilia C. Gonzales



Gov't hikes inflation target

... rates kept steady

The government has hiked its inflation target for the whole year to 5.4% due to rising oil and food prices. This followed a National Statistics Office (NSO) announcement that September inflation rate had hit 6.9%, the highest in three years. Key policy rates, however, may likely be maintained by the Bangko Sentral ng Pilipinas (BSP), which said monetary policies have limited effect on supply-side pressures caused by oil, food and power prices. Reactions from economists were mixed, with one saying the September figure is a cause for concern while another declaring the increase has not gone long enough to be a reason to worry. Socioeconomic Planning secretary Romulo L. Neri, in a statement, yesterday said "The government expects full-year inflation to average 5.4%, slightly above the 4% to 5% inflation target earlier set by the government." The National Economic Development Authority (NEDA) said it expects inflation for October to December to average 7%, due largely to sharp increases in oil prices.

BSP Assistant Governor Diwa C. Guinigundo, meanwhile, said "The Monetary Board will look for demand pressure on inflation before changing course." The BSP's policy-making Monetary Board said supply-side inflationary pressures are outside the influence of monetary policy. It has kept policy rates unchanged at a 12-year low of 6.75% for overnight borrowing and 9% for overnight lending. September inflation topped the upper end of the Bangko Sentral's inflation forecast for the month of 6.3%-6.8%.Mr. Guinigundo said the BSP had anticipated the latest figure. He said pressures continue to come from the supply-side such as oil prices, higher power costs and an increase in prices of certain food items. The same point was echoed by Mr. Neri, who said the increase in the inflation target for 2004 was brought about by continuous pressures being exerted by oil prices and the further tightening in oil supply. The NEDA said core inflation, a measure of long-term inflationary pressure, rose to 6.6% in September from 6.2% in August. "This shows that inflationary pressures are becoming more permanent than transitory," Mr. Neri said.


Meanwhile, University of Asia and the Pacific economist Victor A. Abola said the September inflation should not be a cause for concern. University of the Philippines economist Ernesto Pernia, however, said the government should start worrying. "It was only in July that prices started climbing due to oil price hikes. Also, the base for this year's inflation rate was very low since the yearago figure was at 2.9%," Mr. Abola said in an interview. He also said that on a month to month basis, prices have been declining. "Inflation increased by 1.1 percentage points in June, then 1.1 in July but inflation increased by only 0.3 percentage points in August. Prices have in fact been decelerating on a month to month basis," he said. But Mr. Abola cautioned that the country may be in for tough times next year, especially if the hike in oil prices will continue.

Mr. Pernia, meanwhile, said the inflation rate is already a "cause for worry" since it may have an adverse impact on the country's gross domestic product and debt servicing. "I think inflation will approach 6% this year and this is a cause for worry since it could slowdown consumer demand as consumers will be discouraged," he said. A high inflation rate, he said, could force the government to increase interest rates which may make the country's debts more expensive to service.


To counter the inflationary pressures caused by oil, Mr. Abola called for the immediate implementation of energy saving schemes. To move away from its dependency on imported oil, Mr. Pernia said the government should start developing alternative sources of energy. Oil prices have been shooting up, with Dubai crude -- the benchmark for local oil prices -- hitting $37 per barrel in September from $33 in June. Added to these woes, several typhoons hit Luzon, particularly Metro Manila last month, raising the prices of basic commodities.

The Bangko Sentral is assuming a year-end average price of $33.56 per barrel for Dubai crude. The BSP increases rates to siphon off excess money in the local economy that could be pushing inflation upward and slash the purchasing power of the peso. Monetary authorities have repeatedly said an increase in rates will not be effective in addressing inflation in the current situation. "Monetary authorities will continue to assess economic and financial developments and undertake the necessary adjustment in monetary policy settings to arrest the buildup in inflation expectations and prevent inflation persistence," BSP officer-in-charge Armando L. Suratos yesterday said in a statement. The International Monetary Fund has urged the BSP to keep a close watch against inflationary pressures and move to tighten rates if necessary amid rising interest rates and higher oil prices. -- Jennifer A. Ng and Iris Cecilia C. Gonzales



49 state-owned firms seen posting PhP131-B losses

Forty-nine government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) will post a combined net loss of PhP131.16 billion at the end of this year, the chairman of the House of Representatives committee on appropriations said yesterday. Consequently, some of these GOCCs and GFIs will require some PhP13.7 billion in subsidies from the National Government to keep them afloat this year, Camarines Sur Rep. Rolando G. Andaya, Jr. said in a statement. Based on the Budget of Expenditures and Sources of Financing for 2005 that the Department of Budget and Management (DBM) submitted to the House of Representatives in August, only 20 of the 49 GOCCs and GFIs are projected to earn income totaling some PhP8 billion by yearend.

These include the Land Bank of the Philippines which is projected to earn PhP2.2 billion; Development Bank of the Philippines, PhP2 billion; National Development Co., PhP1.074 billion; and the Philippine Ports Authority, PhP1.584 billion. The other GOCCs and GFIs that are expected to post earnings this year are:

  • the National Irrigation Administration;
  • Philippine Crop Insurance Corp.;
  • Philippine Fisheries Development Authority;
  • Quedan and Rural Credit Guarantee Corp.;
  • Laguna Lake Development Authority;
  • Trade and Investment Development Corp.;
  • Employee Compensation Commission;
  • Phividec Industrial Authority;
  • Public Estates Authority;
  • Philippine Tourism Authority;
  • Philippine Economic Zone Authority;
  • Philippine Leisure and Retirement Authority;
  • Cebu Ports Authority;
  • Development Academy of the Philippines;
  • National Housing Authority; and
  • the Philippine Charity Sweepstakes Office.

The National Food Authority, meanwhile, is expected to post a loss of PhP14.552 billion by yearend, almost double the PhP7.585 billion recorded at the end of 2003. The Light Rail Transit Authority, Philippine National Oil Co., National Home Mortgage and Finance Corp., Technology and Livelihood Resource Center, National Tobacco Administration and Philippine Television Network. Inc. will similarly incur losses, although substantially less or just a little more than what they incurred in 2003. These are among 15 losing GOCCs and GFIs that Budget Secretary Emilia T. Boncodin has warned to shape up or else they will be abolished. The gain/loss projections were based on reports submitted by the 49 GOCCs and GFIs to the DBM prior to its preparation of the 2005 budget. The Al Amanah Islamic Investment Bank Philippines, Philippine National Railways and the Human Settlement Development Corp. failed to submit their gain or loss projections to the DBM, Mr. Andaya noted.

GOCCs that will require National Government subsidies include:

  • the National Food Authority;
  • National Irrigation Administration;
  • National Tobacco Administration;
  • Philippine Coconut Authority;
  • Sugar Regulatory Administration;
  • National Dairy Authority;
  • National Electrification Administration;
  • Lung Center of the Philippines;
  • National Kidney and Transplant Institute;
  • Philippine Children's Medical Center;
  • Philippine Heart Center;
  • Philippine Institute of Traditional and Alternative Health Care;
  • Philippine Convention and Visitors Corp.;
  • Center for International Trade Expositions and Missions;
  • Cottage Industry Technology Center;
  • Light Rail Transit Authority;
  • Philippine Institute for Development Studies;
  • PTV 4;
  • Cultural Center of the Philippines;
  • National Home Mortgage and Finance Corp.;
  • National Housing Authority;
  • Philippine Rice Research Institute;
  • Zamboanga City Special Economic Zone Authority; and
  • the Cagayan Economic Zone Authority.

"Although it can be argued that GOCCs imbued with a social welfare function are expected to lose money by the nature of their mandate, as in the case of specialty hospitals, that defense, however, is not applicable in all cases," Mr. Andaya said. -- Judy T. Gulane



Nenaco rehab plan approved


A Manila court yesterday approved the 10-year corporate rehabilitation plan of debt-ridden shipping firm Negros Navigation Corporation (Nenaco). Noting receiver Monico V. Jacob's rehabilitation map to be "exhaustive, impartial, and most reliable," Judge Artemio S. Tipon of Branch 46 ruled that the firm would be in a better position to pay its debts if it follows the 10-year plan rather than liquidating all its assets. Mr. Tipon said the liquidation scenario will only account for 80% of the shipping firm's debts, lead to the loss of more than 1,000 jobs, and permit one shipping firm to monopolize the domestic shipping industry. "The Court is convinced that given enough breathing spell, the business of Nenaco can be rehabilitated and revitalized, given the fact that it has a loyal clientele in its Manila-Iloilo-Bacolod route and that it has a firm grasp in the passenger and freight market," the judge said in his order, which was signed yesterday.

Nenaco, the country's second largest shipping firm, filed for corporate rehabilitation on March 29, 2004. Its debts had hit PhP2.5 billion and the firm said its financial woes could be traced to a decrease in passenger volume and to the 1997 Asian financial crisis, which increased interest rates and operating costs. Mr. Jacob submitted a three-phase rehabilitation plan early September. The first phase, from 2004-2006, is aimed at firming up the company's finances and a 10% yearly increase in revenues. The next phase calls for route expansion to capture a larger market, and by 2015 the company must have settled all its debts. The court also ruled, as suggested by the receiver, that the company pay its creditors, both secured and unsecured, under equal terms and conditions to eliminate preferential treatment. "This Court has the obligation to look out for the welfare, not only of the said secured creditors of Nenaco, but also the welfare of the unsecured creditors, employees and stockholders of Nenaco and the general riding public," Mr. Tipon said. The judge also criticized the creditors' opposition to the rehabilitation guidelines, particularly their request to hike interest rates and shorten the time line of the rehabilitation plan.

Creditors will get four board seats under Mr. Tipon's order: one to be appointed by the court and three to be allotted by the shipping firm. Mr. Jacob was ordered to attend the board meetings and submit a report on the company's rehabilitation every three months. Nenaco president Sulficio Tagud Jr., meanwhile, said the shipping firm can now focus on its operations following approval of the rehabilitation plan. "With the rehabilitation, we can now focus on the real work of turning the company around. There is no need for us to talk with various creditors because there is now a debt service parameter," Mr. Tagud said. Nenaco has 10 years to pay its PhP2.5-billion debt. Creditors will be paid under an interest rate of 5% for the first four years and 7.5% for the next six years. Unsecured creditors will be paid 2.5% in interest. Mr. Tagud said Nenaco is expected to post losses during the first two years of its rehabilitation. "We want to charge all the mistakes of the past on the current year so we would be in a better position moving forward," he said.

Nenaco incurred an PhP8.2-million loss in 2003 after posting a PhP102.7-million income in 2002. In 2001, Nenaco losses stood at PhP1.8 billion. The debt-saddled shipping firm recently received financial support from its parent, Metro Pacific Corp., which provided PhP123 million so the company could settle its August tax dues. Nenaco still owes the Bureau of Internal Revenue some PhP302-million. "Nenaco still needs PhP130 million. Metro Pacific is helping us raise the money because creditors won't lend to Nenaco at this point," Mr. Tagud earlier said. The remaining amount will be used to finance the dry-docking and repair of Nenaco vessels San Paolo, St. Peter the Apostle, and St. Ezekiel Moreno. Nenaco currently operates nine vessels versus the 20 vessels run by leading shipping firm Aboitiz Transport Services Co.



Japanese ratings agency pegs RP growth at 5%


The Japan Credit Rating Agency (JCRA) expects the Philippine's gross domestic product to grow 5% this year, in line with the government's own projection of 5.9% to 6.1%. In a September report, JCRA said growth could be higher if not for an expected slowdown of the world economy in the second half of the year and rising oil prices. The International Monetary Fund has raised its 2004 growth forecast for the Philippines to 5.2% from 4.5%, citing the strong first half performance of the economy. The Asian Development Bank has also upgraded its growth outlook for the Philippines to 5.5% from 5%, also citing improved prospect for agriculture.

Earlier in September, investment bank Morgan Stanley also raised its forecast for the Philippines to 5.6% from 4.5%, also on first half growth. JCRA, which maintains a BBB or investment grade on the Philippines' sovereign debt, however, urged the Macapagal-Arroyo administration to continue its fiscal reform programs to help support economic growth. "The fiscal position of the country has not reached the proportions of a default crisis. However, the continuation of the fiscal reform programs initiated by her previous administration is indispensable to improve the country's weak fiscal position," the rating agency said. The agency said the government should continue to increase revenues and control expenditures to improve the fiscal position and hold the public debts at manageable levels. "Given the debt owed by the National Power Corporation (Napocor), a failure to do so could mean the country's fiscal position would again deteriorate, making it impossible to stem an expansion of public debts in the medium term," it added. The government plans to absorb Napocor's PhP500 billion debts to help the privatization of the money-losing power firm be more viable and make it more attractive to investors.

Standard and Poor's Ratings Services, meanwhile, said in a report yesterday that a hike in the US Federal Reserve System rates is not likely to affect the credit quality of most emerging markets including the Philippines. Still, it stressed the need for the Philippines to maintain its projected fiscal balances. The government aims to balance the budget deficit by 2009. The government incurred a deficit of PhP199 billion last year and hopes to contain the deficit at PhP197 billion this year. S&P reviewed the debt profiles of eight key governments -- the Republics of Hungary, Poland, South Africa, Colombia, Philippines, Turkey, the Republic of Brazil and the United Mexican States. "Even under sharply higher global and domestic nominal interest rates. Standard and Poor's believes that these eight government should keep their debt trajectory under control so long as they make sufficient mid-course corrections to maintain currently projected fiscal balances and so long as they continue to pursue reforms that underpin growth," S&P said.

The US Federal Reserve System had already raised rates to 1.75% so far to contain inflation in the growing US economy. The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP), however, said it still had enough room to keep rates steady given the "comfortable" interest rate differential between peso and dollar-denominated bonds. The BSP usually matches a move by the Fed to prevent capital flight which could happen when investors shift their funds to economies with higher interest rates.



Philippines risks ratings downgrade

The country risks a credit downgrade if Congress fails to pass new tax measures being pushed by the Arroyo administration, the President's economic spokesman yesterday warned. During the government's "global-no-deal road show" late last month, credit rating agencies Fitch Ratings, Moody's Investors' Service, and Standard and Poor's (S&P) said "no new taxes passed means the Philippines will suffer a downgrade in international credit ratings," Trade and Industry Secretary Cesar A.V. Purisima told the 30th Philippine Business Conference at the Manila Hotel. "This will dry up financial support from the international markets" aside from resulting in a peso depreciation, he said. Mr. Purisima argued that additional revenues are needed to rein in the ballooning deficit, which is expected to reach PhP197 billion this year.

A ratings downgrade will make it more expensive for the government to borrow money abroad. The Philippines is the second largest debt issuer in Asia after Japan. Philippine credit ratings are currently a couple of notches below investment grade. Fitch, saying that the speculative possibility of credit risk was developing, issued a "BB" rating last year. Moody's has given the Philippines a "Ba2" largely on the same grounds.

Recently, S&P downgraded the country's currency rating to BBB- from BBB citing political risks, huge government debt, and a shallow capital market. S&P has a BB rating for Philippine debt. President Gloria Macapagal Arroyo has said the Philippines is currently in a "fiscal crisis," widely interpreted as a justification for new tax measures. Mr. Purisima said the PhP80 billion in additional revenues expected to be collected annually from the new tax measures are not even enough to cover the budget deficit. He also pointed out that the consolidated public sector deficit by yearend would be bigger at PhP318 billion. Nonetheless, the Philippines' $57-billion foreign debt is still manageable with an average maturity of 19.5 years, Mr. Purisima said. He acknowledged, though, that aside from new taxes, more revenues could be raised by efficient tax collection and by "growing the economy." To reduce poverty gross domestic product or GDP must grow at a sustained 7.3% in the next six years, he said. This would double the income of the bottom 35 million of the population earning $2 or less a day. Doubling the income of poor Filipinos means a $25-billion increase in the country's approximately $80-billion annual GDP over a six-year-period, Mr. Purisima said. It would also be easier to achieve this by doubling the economic contribution of small and medium enterprises, which currently account for $25 billion of the GDP, than increasing the output of the country's 10,000 large firms. It costs PhP50,000 to create a new job in a small enterprise, as against PhP1 million for a large company, he said. -- Felipe F. Salvosa II



Break down economic disparities -- Mahathir

Former Malaysian strongman Mahathir Mohamad yesterday said "affirmative action" enabled his country to achieve national unity and economic growth. This was done by reducing class and racial animosities as well as striking a balance between rich people's desire to earn profit and the poor's right to a decent living, he told the 30th Philippine Business Conference and Exposition organized by the Philippine Chamber of Commerce and Industry at the Manila Hotel. The 78-year-old ex-prime minister declined to offer advice to President Gloria Macapagal Arroyo, saying he preferred to share his experiences in presiding over Malaysia economic success. "The Malaysian experience is an open book," he said.

Mr. Mahathir said affirmative action helps prevent racial animosities caused by economic disparities "but the disparities in income between rich and poor must also be reduced if an equitable and harmonious society is to be built." "Governments must therefore oversee that wage demands and increases are sustainable, while employers do not exploit workers. There should be not only fair wages for the workers but wages should increase in real terms so that workers will enjoy a better life as the economy grows. After all, the increasing prosperity of the country is due also to their inputs," he said. Mr. Mahathir also cited to need to control prices of essential goods, saying this was the case in Malaysia since World War II. "With low inflation, the increase in wages need not be too high to give greater purchasing power and improve the standard of living. With improvement in [the] standard of living the disparity in income between rich and poor would not be so great, and there would be less envy and jealousy." He pointed out that the instruments in achieving class equity are the "usual ones" -- tax the rich and exempt the poor. However, the rich should be recognized as "assets" since they create economic activity and new jobs. "The activities of the rich are overseen by the government so as to prevent exploitation of the poor and of society itself, but the rich must be helped to legitimately make reasonably more money so as to grow the economy," Mr. Mahathir said.

In Malaysia, he said there is "positive discrimination in favor of the economically weak race," the Malays and indigenous peoples, in terms of licenses, permits, scholarships, discounts, and access to loans. To appease the wealthy Chinese and the Indians, the Malaysian leadership decided to share power with them in creating a national political coalition. This helped solved race riots and an insurgency led by the Chinese who had been denied citizenship and the right to own land, he said. As a result, the Malays have achieved a 20% share of the economic wealth in 20 years, or a 2000% growth. At the same time, the Chinese and the Indians increased their share of economic wealth to 40% from 30%, or "40% of a much larger economic cake," he said. Mr. Mahathir said it is also important for parliamentary governments to achieve a solid majority that has the continued support of constituents, otherwise, it would be difficult to craft an economic strategy for the long term. During Mr. Mahathir's 22-year reign, Malaysia transformed from a basketcase into a major trader, with trade twice the size of its gross domestic product. GDP grew at an estimated 5.2% last year. Purchase power parity-adjusted per capita income is pegged at $9,000.

The former prime minister's speech, scheduled before lunch, was briefly interrupted by a power failure, for which organizers apologized profusely. But he later resumed his jolly mood, joking that Malaysia came to be known internationally for issuing "outrageous" statements and upstaging the world's tallest skyscrapers by building Kuala Lumpur's twin Petronas Towers. "If you are short, stand on a big soapbox so you can be seen," Mr. Mahathir quipped. He also gamely answered a question from a member of a panel of reactors who asked for a statement on the acquittal of political rival Anwar Ibrahim on a sodomy charge. Mr. Mahathir pointed out that Mr. Anwar still faces a corruption charge. There was also no question from the judge that Mr. Anwar committed the act of sodomy but that police bungled the case by indicating the wrong date on the charge, he said. It would likewise be hard for Mr. Anwar to make a political comeback in case of a conviction, which would mean a five-year ban in government service. "We are not worried about him because the acquittal was on flimsy grounds," Mr. Mahathir said.


President Gloria Macapagal Arroyo yesterday vowed decisive action against escalating incidence of hunger in the country, pledging to combat communist and Muslim separatist insurgencies as well as the high unemployment rate, which she blamed starvation and poverty in the Philippines. "We cannot shut our eyes to the truth of hunger and poverty. The immediate causes are unemployment in the cities, and pockets of conflict in the countryside," the President said in a statement. "Our key and current programs are to forge peace at the rural community level and move to decongest the slum belts in the cities so that we can spread more room for self-reliant enterprise," she added.

A survey of the Social Weather Stations last month found a "near-record-high 15.1% of household heads reporting that their families had experienced hunger, without having anything to eat, at least once in the last three months". The national survey, conducted from August 5-22, also showed that 53% of households rated themselves as poor. The President said that her 10-point agenda, which she first articulated in her State of the Nation Address (SONA) last July, hopes to solve the challenges of hunger and poverty. She, however, admits that fiscal constraints limit the government's ability to help the poor. "Our nation has all the resources to feed its people but we have to unlock the channels for food and opportunity to flow. This is the first step even before we can think of the equally strategic factor of education," the President said. "I spend most of my working day on these challenges -- building the physical, digital and human infrastructure to fight poverty, while nursing precious resources to extend the lifeline to the most needy families," she added. Despite the prevailing hunger among Filipinos, as well as the continued economic woes of the country, Malacañang yesterday remained upbeat on the economic prospects of the Philippines.

Press Secretary Ignacio R. Bunye said there is much reason for optimism than dismay despite the nation's fiscal turmoil because there are now more opportunities for development than ever before. He said indicators that the economy is recovering are seen by the way the share prices in the Philippine Stock Exchange have been rising and in how the peso has withstood attacks by foreign exchange speculators. "Investor confidence remains strong and this is a clear measure of satisfaction in the President's political and economic agenda," the Palace official said. Mr. Bunye also pointed out that the streamlining of the government is under way, industrial peace is at hand, and the quest for an end to three decades of conflict in Mindanao is moving forward.

Senate President Pro-Tempore Juan M. Flavier, meanwhile, blamed the high population growth rate for the high incidence of hunger in the country. Mr. Flavier noted that the annual 2.36% population growth was bigger than the annual 2.1% food supply growth. "If you will look at the [SWS] survey, the poverty incidence went down but those households experiencing hunger increased," he told reporters. The lawmaker who earlier served as Health Secretary noted the urgent need to step up the family planning program. "I go for a more aggressive program which I exemplified when I was the secretary of health."

Administration Sen. Miriam Defensor Santiago, for her part, called on the government to decisively resolve the high hunger proportion and poverty incidence. "We cannot hide the truth that the people are getting impatiently dissatisfied with the economic situation. But what choice do we have other than to rally and throw our support behind the President?" Mr. Santiago said in a statement. Fellow Administration Sen. Richard J. Gordon called for food donations from hotels, restaurants and supermarkets to be distributed to the less fortunate citizens. "Tons of edible and unused food is wasted in dining establishments and markets. It is a shame that we do not utilize these resources and turn them into something palatable for the others," Mr. Gordon said. Based on the latest SWS survey, the incidence of hunger was highest in Mindanao at 23%. "We believe that the solutions of the President are on the right track, and the President is very determined to address poverty and the hunger situation in the country," he said.

The Press Secretary cited the government's on-going supplemental feeding programs, as well as the food voucher system in addressing starvation in the country. The President earlier ordered the Social Welfare Department to issue "food coupons" in order to allow poor families to avail of free grocery and food supplies from the government. "Whatever the survey says is unfortunate and it is our collective responsibility to see to it that people don't suffer the pain and shame of hunger," Mr. Bunye said. "We are pushing these programs higher in the realm of socioeconomic safety nets." -- Felipe F. Salvosa II, Jeffrey O. Valisno and Carina I. Roncesvalles



UCPB clinches idle asset deal worth 13.6B pesos


After months of negotiations, United Coconut Planters Bank (UCPB) has reached an agreement "in principle" with asset management company First Sovereign Funds Corp. for the sale of PhP13.6 billion worth of idle assets. Jose L. Querubin, UCPB president and chief executive, said the bank expects to close the agreement and get regulatory approvals "very soon." "The sale, when consummated, will be the biggest SPV transaction so far under the SPV Act and the first one that will involve purely bank real and other properties owned or acquired [ROPOA]. Previous SPV deals mainly covered non-performing loans. The sale will also cut by more than 55% UCPB's level of ROPOA," he said. Mr. Querubin also said the bank is mulling more special purpose vehicle (SPV) transactions before the law expires next year.

First Sovereign Funds is an SPV set up by Pennsylvania Capital Holdings, Inc., the Philippine affiliate of investment management firm Shinhan M&A of South Korea, which has done several SPV deals in the Asia-Pacific region. "This is a landmark deal for the Philippine banking industry. We think it will create a very bullish climate for SPV transactions and we expect to see more banks following UCPB's lead in the wake of this deal," said First Sovereign Funds Chairman Han Kim. Together with its financial advisor US-based management consultancy firm PricewaterhouseCooper and legal counsel SyCip Salazar Hernandez & Gatmaitan Law Office, UCPB and First Sovereign Funds are now working out the "finer" details of the agreement and expect to be able to close the transaction before the April 8, 2005 deadline mandated under the SPV Act. The state-led bank said it entered into direct negotiations with First Sovereign Funds in late August following two failed public auctions. First Sovereign Funds submitted the highest bids in the second auction although these did not to meet the bank's price. UCPB held an auction for PhP15 billion worth of foreclosed properties last July 19 but failed to close a deal with any of the six investment banks after the bidders' noncompliance with the bank's requirements. UCPB was supposed to be the first bank to close an SPV deal since the SPV Act was passed in 2003.

Earlier, Ayala-led Bank of the Philippine Islands inked a deal with Morgan Stanley Emerging Markets, Inc. for the sale of PhP8.6 billion worth of bad loans. The transaction is expected to be completed within the year after complying with regulatory requirements. Mr. Querubin said UCPB registered an SPV with the Securities and Exchange Commission early last month and this will be used as the vehicle for the succeeding SPV transaction. Banks that want to take advantage of perks under Republic Act 9182 had until Sept. 18 to establish and register their SPVs with the securities regulator before incentives offered to purchasers expire in April 2005. Incentives include tax perks and reduced transaction fees. Aside from the SPV transaction, the bank has resorted to retail public auctions and direct sales as modes of asset disposition in its idle asset reduction strategy.

As of end-August, it has unloaded PhP1.6 billion of acquired assets, mainly commercial and residential properties. It expects to sell another PhP200 million to PhP500 million bad assets through two more public auctions, one of which is set for this month and the other within the second quarter of 2005. UCPB has been negotiating with other private investors to form joint ventures to transform select real estate holdings into earning assets. The bank inked a joint venture agreement with Sta. Lucia Realty and Development, Inc. and another private landowner last month to develop a 12.25- hectare property in the outskirts of Tagaytay into a middle-income subdivision. "It is also in advanced talks with Brittany Corp. to develop a bank-acquired property along and at the back of Daanghari Road in Muntinlupa City into various residential subdivisions," it said.

The Bankers Association of the Philippines and the central bank have asked the Senate to extend for at least two more years the deadline to set up SPVs. The Philippine banking system's bad loan ratio peaked at 18.81% in October 2001 from a single-digit level before the 1997 Asian financial crisis. In its published statement of condition, UCPB's bad loan ratio hit 33% of its total loan portfolio as of June 23. Nonperforming loans -- or loans at least 90 days past due -- amounted to PhP18.75 billion, while ROPOAs hit PhP21.96 billion.



Three-year T-bond rate down to 11.254%

Despite another rise in the country's inflation rate, banks' excess liquidity still pulled down the rate of the reissued three-year debt instrument. In yesterday's auction, the three-year Treasury bond fetched a yield to maturity rate of 11.254%, down by 34 basis points when it was last offered on September 14. The Bureau of the Treasury sold PhP4 billion worth of bonds but tenders reached PhP12.688 billion. The auction committee accepted all bids. "For a three-year paper at 11%? At these levels, it's already attractive. [We were expecting] that it would shoot up because of the inflation [figure] but I think the market is already comfortable at this yield," National Treasurer Mina C. Figueroa said. At the secondary market, the three-year paper was traded at 11.4667%. Yesterday, the government reported that inflation in September surged to 6.9% from 6.3% in August, following the rounds of oil price hikes. Traders said, however, that the three-year debt instrument was still a good buy at this time. "While liquidity is still there, the paper is still a shorter-dated security. There are really demands for the two and three years," a trader said.


At the Philippine Dealing System, the country's electronic currencies exchange, the Philippine peso averaged stronger by more than three centavos at PhP56.266 from PhP56.298. Trading within a tight range of three centavos, the peso hit its high at PhP56.255 against the dollar after opening at PhP56.27. It closed at PhP56.28 against the greenback. Total volume of dollar turnovers decreased to $141 million from $148 million previously. -- Ira P. Pedrasa



BPI fails in its Indonesian bank bid

Second largest lender Bank of the Philippine Islands (BPI) confirmed that the consortium to which it was invited to participate in the bidding for PT Bank Permata Tbk failed to get in the short list. In a disclosure to the stock exchange, BPI said the privatization program for Indonesia's seventh largest lender by assets "presented an opportunity to possibly enter" the Indonesian market. "We confirm that the consortium to which BPI was invited to participate conducted a preliminary evaluation of this opportunity in the early stages of the privatization process," the Ayala bank said, adding that the consortium was not chosen to proceed beyond the first stage of the process. It teamed up with Indonesia's Bank Danamon, UK-based Barclays Bank and Temasek Holdings of Singapore to bid for Bank Permata, the last bank to be sold under a government divestment program. -- Ruby Anne M. Rubio



PSE puts on front burner efforts to entice more firms to go public


The Philippine Stock Exchange (PSE) is not wasting time to convince companies enjoying fiscal perks to go public. PSE President Francis Lim said luring companies to list at the bourse will top his agenda. "It is payback time," he said, considering the firms have been receiving government support through tax incentives. He said the PSE will cooperate with concerned government agencies to convince companies to comply with regulations in order to enhance the mix of stocks at the exchange. "It will be good to see in the future that wives, drivers, new graduates and others invest in the market," he said. But Mr. Lim is aware that this is not an easy task. Many issues need to be ironed out first before the bourse could get these firms on board.

In the case of companies registered with the Board of Investments (BoI), the PSE recognizes that it is critical to convince these firms the exchange is a worthy investment facility. This, he said, can be done by implementing reforms that would correct impressions the exchange is an old boys' club. "The public do not invest in the stock market because they do not know the fundamentals and they do not trust it," Mr. Lim said. This requires change, not only from the exchange but also from the government. "Realistically, it could be done but there are underlying factors in the country such as the economic condition and political stability [that hamper moves to get these firms listed]," Mr. Lim said.

Trade and Industry Secretary Cesar Purisima launched a drive in August to compel about 5,000 companies registered with the BoI to list at the exchange, ordering trade authorities to look beyond canceling the perks given to firms existing for 10 years but still have not complied with the requirement of Executive Order 226 or the Omnibus Investments Act of 1997. The directive requires BoI-registered firms to offer shares to go public. "It will be ideal to have them as well as energy and other quality companies listed to enhance the menu of stocks," Mr. Lim said. "We will support the move of the government and have to look at the [impediments] seriously. We should persuade these companies in a friendly way." Jose Cervantes, PSE senior vice-president and head of research and business development group, said that companies basically list to raise money.

Given this, multinational companies and other local firms doing good in their respective businesses may not have the motivation to list because they see no need to raise additional funds. The BoI requires firms registered under it and which are enjoying incentives for at least 10 years to offer at least 10% of their total shares to the public. "Only 10%? That is nothing.," Mr. Cervantes said. He is also concerned some firms may go ahead with listing even without preparation just to hold on to their incentives. "They may only end up as dormant companies because there is no liquidity. They do not have enough cash and yet they will list just to comply with the BoI requirement."



BayanTrade says deals reach $500-million mark

Sourcing, procurement, and supply chain service provider BayanTrade yesterday said the trades it managed since it began operations in 2000 has hit $500 million. In a statement, the company said that hitting $500 million in trades makes it the first Philippine-based sourcing and procurement services provider to hit the half-billion-dollar mark. BayanTrade is owned by Aboitiz Equity Ventures, Inc., Ayala Corp., Benpres Holdings Corp., JG Summit Holdings, Inc., Philippine Long Distance Telephone Co., and United Laboratories, Inc. "Being able to process $500 million worth of trade is a significant measure of BayanTrade's success as a sourcing and procurement service provider. A Filipino company taking on a leadership position in this field, which is the next big segment of business process outsourcing, shows the market our capability in providing world-class sourcing and procurement services," BayanTrade President and Chief Operating Officer Dante Briones said.

The company said it achieved the $500-million mark by managing the sourcing and procurement requirements of 325 key regional, multinational and top Philippine corporations across different industries; facilitating 1,800 sourcing events; and managing transactions involving over 165,000 purchase orders. It said the continuous expansion of its industry networks also accounts for the company's growth. BayanTrade said its customers "have realized the advantages of leveraging its rapidly expanding network." It said that buyers that use BayanTrade's system have reported an average of 15%-20% in cost savings and that overall transparency in the bidding process has improved. -- J. G. U. Rubrico



PhilRatings reviews Filinvest Land rating

Local credit rating agency Philippine Rating Services Corp. is reviewing the debt rating of listed Filinvest Land, Inc. In a statement, PhilRatings said it is determining whether it will maintain the PRS Aa rating on the PhP2-billion long term commercial papers of the Gotianun-led company. PhilRatings, an affiliate of Standard and Poor's, said it will take into consideration Filinvest's "above average business profile" in its ongoing review. The property developer has a significant presence in the domestic homebuilding sector. "Housing sales have seen substantial improvements in the last two years although sector growth may remain moderate going forward owing to overall economic conditions," it noted.

A PRS Aa rating means the debt instruments, which will mature next month, have margins of protection, although not as large as PRS Aaa-rated issues. Thus, a small degree of investment risk still accompanies the commercial papers. Filinvest has maintained a fairly conservative capital structure while earnings generation and cash flow coverage of debt have been moderate and stable. Although the needed refinancing of its maturing debt has yet to be finalized, the company already informed the Philippine Stock Exchange yesterday that it plans to issue PhP2 billion worth of five-year notes to finance debts maturing in November. Filinvest Land has tapped First Metro Investment Corp. to head a group of banks that will manage the debt issue. -- Cecille S. Visto



Phisix slips; market stays upbeat


The Philippine stock market took a breather yesterday with share prices finishing lower after moving up to a four-year record close. Profit-taking drove share prices down but at a manageable pace. Mylene Crucena Mercado, investment analyst at, said investors' move to pocket gains was not surprising after the market moved up more than 20 points last Friday and higher on Monday. The market's rise on the first trading day of October signalled the end of the previous profit-taking which was confirmed further by a 64.92 jump in the Philippine Stock Exchange composite index (Phisix) the other day. "There is a lot of good news in the country today. [The market's drop] was only due to profit-taking," said Ms. Mercado. The benchmark Phisix was down 18.25 or 0.96% to 1,833.35, still within market expectations.


Ms. Mercado cited several reasons for the continued optimism among investors who see the decline as a temporary blip. First was the positive outlook on the consumer confidence for the fourth quarter of the year. Based on an expectations survey conducted by the Bangko Sentral ng Pilipinas (central bank) on 2,425 households in Metro Manila last July, consumers are optimistic that from the third quarter this year to the same period in 2005, prices will become more stable, power costs will decline, income from jobs and investments will improve and crime rate will drop. The survey showed a 7.6% diffusion index, the percentage share of households that gave positive answers minus the percentage share of households that gave negative replies.

With September heralding the start of the Christmas shopping season in the Philippines, consumer spending is expected to rise proportionately, resulting in better gains for companies, particularly listed firms. The second factor for the confident stride in the Philippine stock market was the strong bullish sentiment. As had been expressed by various groups, the local bourse is poised for a bull run this year.

The Philippine Stock Exchange has been forecasting good times ahead for the market with its chairman, Alicia Rita M. Arroyo stressing that the bearish sentiment will soon be over. This was echoed by the bourse's president Francis Lim, noting that there are strong indications of a bull run from this year onwards. Stock market analysts as well as research firms and asset management groups have also given the same outlook based on technical indicators. "The market's sentiment is bullish especially after it breached the 1,800 level which was the previous resistance. It's an upward trend," said's Ms. Mercado. She added that the upgraded outlook of the International Monetary Fund (IMF) also served as an anchor for the market. The IMF adjusted its gross domestic product growth forecast for the Philippines this year to 5.2% from 4.5% earlier on the economy's strong first-semester performance, consistent with the improved outlook of the Asian Development Bank (ADB) for the country's growth.

Last month, the ADB upgraded to 5.5% from 5% its growth forecast for the Philippines given the bright prospects for the agriculture sector. While the market awaits the release of third-quarter reports, investors are on the lookout for stocks that have been performing well for the past nine months. "We are now looking at eight-month and nine-month results which are fully satisfactory," said Ms. Mercado.


In corporate news, the net profit of listed China Banking Corp. grew 6.7% to PhP1.95 billion from January to August due to improved interest margins, increased loan bookings, its fee-based business and sustained contributions from its trust operations and treasury-related business. The bank said this strengthens its position as one of the leading universal banks in the country in terms of strength and profitability. Its return on average equity for the period was at 15.65%, still one of the highest in the industry.

Ginebra San Miguel, Inc., the hard liquor arm of food, beverage and packaging conglomerate San Miguel Corp., reported an 8% increase in its eight-month net income of PhP103 million due to a successful thematic campaign aimed at repositioning its flagship brand.

At the stock market, the indices were down except for oil and small and medium enterprise (SME) counters which were unchanged. Mining racked losses of 71.72 or 3.53% at 1,957.80. The commercial-industrial trailed behind as it dipped 24.05 to 2,909.14. Property also weakened 14.18 or 2.15% at 644.87. The banks and financial services dropped 3.05 to 507.57. The all-shares lost 10.87 at 1,117.92. There were only 4,035 trades for 1.8 billion shares worth PhP1.2 billion.

The market's breadth was bearish with decliners beating advancers, 48-34. The number of ssues that clung to their previous levels was at 45. It was still net buying at the Philippine bourse with total foreign buying reaching PhP757.9 million against total foreign selling of PhP545.5 million. Net foreign buying dropped by more than half at PhP212.3 million. Philippine Long Distance Telephone Co. remained the leader among the actively traded stock, up at PhP1,470 with increased market share of 19.05%. Ayala Corp. moved up to the second slot, unchanged at PhP6.60. The Securities and Exchange Commission granted the company last Monday the authority to increase the size of its bond issuance to PhP7 billion from PhP5 billion. Ayala Corp. will issue the bonds, which have coupon rate of 12.677%, tomorrow.



IMF urges new taxes, drastic budget gap cuts

The Macapagal-Arroyo administration must immediately implement bold reforms such as a drastic reduction in the budget deficit and new tax measures to be able to stay on the radar screen of investors, the International Monetary Fund (IMF) said. The recommendations are contained in an IMF staff report on the Philippines, which the government allowed to be published for the first time as part of efforts to be more transparent with its policies and economic programs. Among the more drastic measures is a reduction in the country's debt level over the medium term to give the government more room for needed development expenditures. The IMF said the government should have a large part of its debt reduced in 2005 and 2006 to make the 2009 balanced budget goal easier to attain. "While the authorities had yet to commit to annual deficit targets, staff argued that the deficit reduction should be front-loaded," the Fund said in the report, completed by the IMF team last August 11 following a post-program meeting with government officials on July 8.

The Fund said reducing the deficit, as planned by government -- by about three-fourths percentage point of gross domestic product (GDP) each year from 2004 to 2009 -- "seemed insufficiently ambitious." For one, the IMF said markets will be looking for strong initial evidence of the authorities' ability to tackle the fiscal problem. The IMF team also argued that fiscal measures are likely to be easiest in the opening period of the new administration. Hence, it advocated a reduction in the nonfinancial public sector deficit of 2.5% of GDP by 2005. "If achieved, such a reduction would make the 2009 deficit easier to attain, as well as place the ratio of nonfinancial public sector debt to GDP on a clear downward path," the IMF said. The IMF defines nonfinancial public sector debt as consolidated public sector debt minus the debts of government financial institutions and local government units. The government incurred a deficit of PhP199 billion last year and hopes to contain the deficit below PhP197.8 billion this year.


The IMF urged the government to push through with its planned revenue-raising measures, albeit not all eight Malacañang-backed proposals. IMF resident representative Vikram Haksar, who presented the staff report, said at least three of the eight proposed measures of government may be viable options for raising revenues. For one, he said a higher value added tax rate is attractive, saying that the current 10% VAT rate in the Philippines is still relatively low. A two step increase in the VAT rate to 12% and 14% would significantly increase revenues, he added. Mr. Haksar said the Fund also supports a government plan to increase excise taxes on tobacco products and alcoholic drinks as well as an upward adjustment in excise taxes on petroleum products.

Based on government estimates, a two-step increase in the VAT rate will raise PhP19 billion yearly; a higher excise tax on sin products, PhP7 billion; and an upward adjustment in excise taxes on petroleum products, PhP29 billion. The IMF shot down the government's proposal to grant a tax amnesty for individuals and corporations and the planned shift to gross income taxation (GIT). "While there was scope to simplify the corporate income tax by tightening loopholes and limiting tax official discretion, a GIT seemed ill-advised, particularly given the uncertainty attached to the likely revenue impact," the IMF said in its paper.


Mr. Haksar said financial markets are keeping a close watch on how the government advances its reform agenda. "The Philippines is best off with a reform program that is implemented well. There is no substitute for action," he said. Aside from strengthening fiscal performance, the IMF said government should restore financial soundness in the power sector and reinvigorate the banking industry. With regard to the power sector, the IMF said the government still faces a "large unfinished agenda of power sector reforms." "The privatization program has made little headway, while populist influences on tariff setting have created a perception of regulatory uncertainty and have left the National Power Corp. unable to cover costs," the paper said.

Banking sector reforms also remain wanting given the high level of non-performing assets and low profitability, the IMF said. The IMF said there has been little progress in resolving non-performing assets (NPAs) under the Special Purpose Vehicle framework. "The staff argued that significant NPA sales were more likely if the Bangko Sentral put more pressure on banks to enhance valuation and provisioning of nonperforming assets," it said. The paper reiterated previous IMF recommendations to strengthen legal protection for the Bangko Sentral ng Pilipinas. -- Iris Cecilia C. Gonzales



Palace orders gov't streamlining

President Gloria Macapagal Arroyo yesterday signed an executive order (EO) aimed at speeding up the streamlining of the bureaucracy and the reorganization of government offices. The President issued EO 366 "Directing a Strategic Review of the Operations and Organizations of the Executive Branch and Providing Options and Incentives for Government Employees Who May Be Affected by the Rationalization of the Functions and Agencies of the Executive Branch." "In the midst of challenges facing the public sector such as globalization, increasing democratic pressures and scarce resources, the government has to define its proper role in society, focus its efforts on its core governance functions, and improve its performance on the same," the President said in the order. "To attain improved government performance, there is a need to institute reforms that would transform the bureaucracy into an efficient and results-oriented structure," she added.

Mrs. Arroyo signed the order as "an initial effort" following reports that Congress may not approve a Palace-backed bill proposing the creation of a performance-driven system for government agencies this year. The job cutback scheme is expected to affect 300,000 workers, excluding teachers, police and soldiers, and could generate between PhP6 billion to PhP7 billion in annual savings for the government. he bill calling for a rationalization in government offices is one of eight measures that the President has endorsed for immediate Congress approval in order to generate as much as PhP80 billion in additional revenues and PhP20 billion in savings.

Under EO 366, the President banned all government agencies from hiring additional personnel and renewing the contracts or appointments of all employees hired on a contractual, casual, or temporary basis. Aside from this, the President required all department secretaries to prepare a Rationalization Plan for the whole department, as well as all attached agencies and government firms under their supervision. The plan aims to determine which functions, programs, and projects should be scaled down, phased out, or abolished for either being redundant, outdated, or unnecessary. The plan will also determine which department activities should be removed for "not producing desired outcomes", and for "directly competing with the [functions] of the private sector that can be done more efficiently and effectively by the said sector." The resulting changes in the department's organizational scheme, staffing pattern, and resource allocation will be submitted for review by the Budget department before the President's approval.

Government employees affected by the rationalization scheme will have the option to remain in government service or avail of a retirement and separation package. Those who chose to stay will be placed in a pool for redeployment to undermanned agencies. The government gave assurances that those reassigned will not suffer any pay cuts. However, those who refuse their new job assignments will be deemed separated and will be given separation benefits. Those with 20 years of service or less will be given one-half month of their present basic salary for every year of government service. Those who have served between 21-30 years will get three-fourths month of their present basic salary for every year in government, while those who have serving for 31 years or more are eligible for one month of their present basic pay for every year of service. Those who have rendered less than three years of government service will be given a still to be determined retirement "gratuity."

The EO states no employee who avails of the retirement or separation package will receive less than PhP50,000. The same EO also limits the benefits of retired or separated employees belonging to government firms to PhP1.5 million per employee. Those who chose to retire will also be given their benefits from the Government Service Insurance System, as well as a refund of their contributions to the Pag-IBIG fund, and commutation of unused vacation and sick leave credits. Those who receive separation or retirement benefits from the government will be prohibited from being rehired by any government agency within the next five years, except in educational institutions and hospitals. Funding for the separation and retirement benefits of employees of government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) will come from their respective corporate funds. The benefits of other government employees will come from the national government. The rest of the benefits will be financed through a World Bank facility to cover the cost of the re-engineering program. The President signed the EO a day after Budget Secretary Emilia T. Boncodin identified at least 15 GOCCs and GFIs that have been incurring huge losses. -- Jeffrey O. Valisno



RP outlook raised, but oil to check 2005 growth

The International Monetary Fund (IMF) has raised its 2004 gross domestic product growth forecast for the Philippines to 5.2% from 4.5%, citing the strong first half performance of the economy. The IMF, however, has forecast a slower growth of 4.2% for the country next year because of rising world oil prices. The Fund's growth forecast for the Philippines this year also trails behind the projected growth forecasts for some of the country's neighbors. Thailand is expected to grow by 6.2%, Malaysia by 6.5% and India by 6.4%. The IMF's forecast compares to the Asian Development Bank (ADB) which late last month updated its growth outlook for the Philippines to 5.5% from 5%, also citing improved prospects for agriculture. For 2005, the ADB also upped its forecast to 5.5% from an initial 5%.

Earlier in September, investment bank Morgan Stanley also raised its forecast for the Philippines to 5.6% from 4.5%, also on first half growth despite noting an economic deceleration beginning the third quarter. According to the IMF's September 2004 World Economic Outlook, which was presented to the media yesterday, Philippine consumer prices will rise by 5.4% this year from 2003, exceeding the government's target of 4% to 5%.

In 2005, meanwhile, the IMF projects the country's inflation rate to accelerate to 6.8%, also way above the government's inflation target of 4% to 5%. The Philippine economy, as measured by GDP, expanded 6.3% year on year in the first half of the year. The government earlier raised its full year growth forecast to a range of 5.9% to 6.1% from the original 4.9%-to-5.8% projection, also because of the strong performance of the economy in the first half which was buoyed by the agricultural sector's robust growth.

IMF resident representative Vikram Haksar said skyrocketing oil prices -- which hit $50.47 per barrel at the New York Mercantile Exchange last week -- will weigh on the Philippine economy next year. "Oil is a pressing problem right now," he told a briefing as he presented the IMF's economic outlook. He said, however, that 2004 will be a good year not only for the Philippines but for the rest of the developing world. "Asia as a whole has done very well but next year we will see some softening because of major uncertainties such as oil prices," he said. He said political disruption in the Middle East and in Nigeria, which is the world's fifth largest oil producing country, has added to the factors which could further push oil prices upward. He said the Philippines may be able to cope better if it moves to lessen its dependence on oil by tapping alternatives sources of energy. In its report, the IMF said growth in Asia is projected to average 7.3% in 2004 and moderating to 6.5% in 2005. -- Iris Cecilia C. Gonzales



Stock market posts best close since Feb. 2000

Local share prices finished at their best in four years yesterday, buoyed by strong technical indicators and tight positioning by investors awaiting optimistic third quarter results. The benchmark Philippine Stock Exchange composite index (Phisix) soared 64.35 or 3.6% to 1,851.60, its highest close since Feb. 18, 2000 when it finished at 1,884.28. Although the market was only on its second trading day for this month, its gains were spectacular, with the main index almost tripling that made last Friday.

The market's breadth was bullish, with gainers outpacing losers at 85-8 and unchanged issues at 27. All counters were up, sustaining the momentum achieved at the close of September. Net foreign buying continued to be strong at PhP516.2 million, reflecting the renewed confidence of foreign portfolio managers in the local bourse. Jose Vistan, Jr., research director at AB Capital Securities, Inc., said the absence of bad news fuelled market activity, with investors taking this as a cue to take aggressive positions. He said the market's strong performance indicates continuing bullish sentiment in line with general projections. Last week, BPI Asset Management and Trust Group said the market is looking to a bull run at the close of the year through 2005, especially as a six-year bearish period draws to a close.



Mahathir, GMA to address Philippine business meet

The 30th Philippine Business Conference and Exposition will open this morning, with former Malaysian Prime Minister Mahathir Mohamad, President Gloria-Macapagal Arroyo and top administration officials in attendance. The 78-year-old Mr. Mahathir, who ruled Malaysia for 22 years before stepping down last year, will deliver the keynote speech in which he is expected to share his experiences on Malaysia's economic success. President Gloria Macapagal Arroyo is scheduled to address the three-day conference on Wednesday after receiving a number of resolutions crafted by the Philippine Chamber of Commerce and Industry (PCCI) and its regional members.

The PCCI, in a statement, said it will present an "action-oriented business road map" focusing on a number of "developmental challenges" such as human development, economic growth, "government and business efficiencies," and infrastructure. The annual conference, which will be held at the Manila Hotel, will focus on the theme "One. Global. Filipino. Beyond Business" to show the business community's desire to expand its involvement "outside the four corners of the boardroom," conference chairwoman Alegria Sibal Limjoco earlier told reporters. Also scheduled to speak are Trade Secretary Cesar A.V. Purisima, Agriculture Secretary Arthur Yap, Interior and Local Government Secretary Angelo T. Reyes, Socioeconomic Planning Secretary Romulo L. Neri and Transportation and Communications Secretary Leandro R. Mendoza.

Speeches will also be made by undersecretaries Antonio Lopez of Health and Fe Hidalgo of Education, Naga mayor Jesse Robredo, and Senator Francis N. Pangilinan. Vice-President Noli L. de Castro, who also heads the Housing and Urban Development Coordinating Council, will speak at the concluding plenary session on Thursday. PCCI officials have promised to "grill" Cabinet officials on their accomplishments and their programs in connection with the President's 10-point agenda, which primarily aims for a balanced budget at the end of her term. The country's largest group of businessmen earlier gave the Arroyo administration a "passing grade" of six out of 10 in a system introduced in last year's conference. The conference will also offer business matching, with "roadshow presentations" by Brad Geiser of Geiser Maclang Communication, who will talk about marketing and public relations trends, and tuberculosis expert Dr. Charles Yu, who will tackle health problems in the workplace.Mario Valderrama of the Chartered Institute of Arbitration and Annabelle Abaya of the Core Group Foundation will speak on alternative dispute resolution, while Canadian Ambassador Peter Sutherland will speak on business opportunities in Canada.



San Miguel weighs Del Monte purchase

Food and beverage giant San Miguel Corp. yesterday confirmed that it is looking at the feasibility of buying into Del Monte Pacific, Inc., but said the company has yet to finalize its decision. San Miguel was earlier reported to be among the potential buyers of a 40% stake in Del Monte Pacific. "We confirm that San Miguel Corporation is conducting due diligence on Del Monte Pacific Inc. The due diligence is continuing and no decision has been made on whether or not to submit a definitive bid," San Miguel said in a disclosure to the Philippine Stock Exchange. The 40% stake in Del Monte Pacific which is up for sale is currently held by Italian good group Cirio.

Tinned food producer Cirio, one of Italy's best-known brand names, defaulted on 1.1 billion euros in bonds in November 2002 and is being liquidated after investors rejected a restructuring plan. The company already sold its holdings in Del Monte Foods for $340 million to Fresh Del Monte, reports state. Besides San Miguel, other companies said to be looking at purchasing the 40% stake Del Monte Pacific stake are Japanese company Sumitomo, tinned food and pickles producer Heinz and US-based fruit distributor Fresh Del Monte. The Philippines' Del Monte Pacific specializes in pineapple-based drinks and food. The company reported a 23% fall in second-quarter net profit to $6.6 million, the reports said. San Miguel is Asia's largest food and beverage conglomerate.

Last month, the company completed the purchase of a 50% stake in Australian juice company Berri Ltd. San Miguel declined to divulge how much the stake cost, but it earlier said Berri is valued at A$335 million. San Miguel reported a consolidated net income of PhP4.76 billion for the period of January to August, up 28% from PhP3.72 billion in the same period last year. It also reported operating income of PhP10.1 billion and consolidated revenues of PhP107.9 billion. -- J. G. U. Rubrico



DoE expects no letup in oil price increases till yearend

By Bernardette S. Sto. Domingo , Reporter

The Department of Energy (DoE) yesterday warned that oil prices in the world market would remain high until the end of the year and would force the local oil sector to implement further increases. Energy Sec. Vincent S. Perez said high diesel rates would continue to push small oil firms to raise prices, adding major companies, with more stable financial resources, should be able to hold on to current rates or impose minimal increases. This as he announced that small oil company Eastern Petroleum Corp. already increased yesterday diesel prices by 75 centavos a liter. "Prices of oil are still on the upward trend and are expected to remain high due to the onset of the winter season. We have to brace ourselves for high oil prices," Mr. Perez told a press briefing even as he urged oil companies to implement smaller adjustments. For his part, industrialist Raul T. Concepcion said oil giants Petron Corp. and Pilipinas Shell Petroleum Corp. would likely cut gasoline and diesel prices in the third week of October but he expected smaller oil firms to implement immediate diesel price increases.

In a talk with reporters yesterday, the chairman of Consumer and Oil Price Watch said Petron and Shell are seen to rollback PhP1.65 a liter for unleaded gasoline and 11 centavos a liter for diesel on Oct. 18 or anytime within the third week of the month.For their part, Caltex Philippines, Inc., Total Philippines, Corp., and other smaller oil firms would likely bring down rates of unleaded gasoline by PhP1.72 a liter due to a continuous drop in world oil prices, Mr. Concepcion said.

Mean of Platts Singapore (MOPS)-based unleaded gasoline decreased by $2.46 a barrel to $49.04 a barrel for September from $51.50 a barrel in August. "For diesel, it is the reverse and the price of unleaded diesel will increase by PhP 2.08 because the MOPS regional price of diesel increased by $ 2.63 to $54.29 a barrel in September against $ 51.66 a barrel in August," Mr. Concepcion said. He stressed the difference represents the balance of the under-recovery for August of P1.74 and the September under-recovery of 34 centavos due in October. Mr. Perez said prices softened during the first weeks of September but escalated towards the month's end due to rebel threats on Nigerian oil facilities, production losses in the Gulf of Mexico brought by the several hurricanes that passed in the area, continuing violence in Iraq and the ongoing legal and financial problems one of Russia's largest oil company Yukos.

DoE data showed that Dubai crude, which dropped to $35.50 per barrel average in September from $38.55 in August, is nearing $37 to $38 per barrel spot price in the last five days of trading. MOPS-based unleaded gasoline used by importers, meanwhile, is also hitting $51 to $52 per barrel level, with the October 1 spot price at $52.05 per barrel. Unleaded gasoline averaged at $49.03 per barrel in September from $51.49 in August. MOPS-based diesel, on the other hand, further jumped to $55.45 per barrel in Oct. 1 trading day. The average price of diesel rose by $2.63 to $54.29 per barrel last month from $51.66 in August.

Records showed that the price of diesel had shot up by 71.15% in September this year compared to the same period a year ago of $31.72 per barrel, Mr. Perez said. He said the tightening of diesel stocks in the United States and Europe have kept prices on the steady upward trend. In Asia, China's shift from being an exporter of diesel to a net importer has also contributed to increasing prices of diesel. Records show that China has already imported almost one million metric tons (MT) of diesel compared with last year's diesel exports of 775,357 MT to meet the rapid increase in fuel supply for its transportation sector.

Given market developments for the month of September, Mr. Perez said local oil companies should offset the possible increase in diesel prices by keeping the price of unleaded gasoline at current levels to lessen the impact of adjustments to the public. The Energy chief also stressed that the contract price of liquefied petroleum gas has also climbed to $401.50 per MT in October from $383 per MT in September.

Oil smuggling

Meanwhile, Malacañang yesterday vowed to go after big-time smugglers of oil operating in the country, and pledged to bring smuggling syndicates to justice. "Economic saboteurs must pay the price for the pain they are inflicting upon the people," Press Sec. Ignacio R. Bunye said in a statement. The Palace made the statement following reports quoting Mr. Concepcion regarding the alleged rampant smuggling of oil happening under "the very noses of the Coast Guard and the Philippine Navy." Mr. Concepcion reportedly said the country has an oversupply of oil, which is good for six months because of the shipments brought in by the syndicate. Despite the oversupply, Mr. Concepcion said gas and diesel prices would remain high as the smugglers sell oil at prevailing high prices to rake in more profit. Mr. Bunye reiterated the President has asked Customs chief George Jereos to draw up an order of battle for smugglers.

The government has implemented a similar strategy of coming up an order of battle in its campaign against drug lords, and kidnappers. "We have already seen kidnappers and drug traffickers being arrested and presented before the public, we will make sure that smugglers are exposed in the same manner," Mr. Bunye said. The President has given the Mr. Jereos two months to "produce significant results" in the fight against smuggling syndicates. -- with Jeffrey O. Valisno



Palace cracks whip on bleeding state firms

Government-run corporations blamed for contributing to a looming fiscal crisis in the country should reverse huge losses or risk being abolished or privatized, Malacañang said yesterday. "The ball is in the court of the losing government firms," Press Sec. Ignacio R. Bunye said in a statement. He said the board and management of the companies in question are being given a "fair chance" to turn around their performance and make a profit or they will preside "over the abolition or privatization of the hopeless cases." "They must repay the trust and confidence bestowed upon them by he national leadership and the people by meeting pressing expectations of performance and managerial ability," Mr. Bunye said.

The warning came a day after Budget Secretary Emilia T. Boncodin identified at least 15 government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) as being the most to blame for the Philippines' ballooning debt. The agencies, she said, were inefficient, have insufficient funds to cover operations and money-losing subsidiaries while their charters prevent them from increasing revenue.


Among those bleeding red ink are the state utility National Power Corp. which is already up for privatization. Other money-losing state firms are:

  • National Food Authority;
  • Light Rail Transit Authority;
  • Philippine National Oil Co.;
  • National Home Mortgage an Finance Corp.;
  • Philippine National Railways;
  • Technology and Livelihood Resource Center;
  • National Irrigation Administration;
  • National Tobacco Administration;
  • National Development Corp.;
  • Philippine Coconut Authority;
  • Al-Amanah Islamic Investment Bank of the Philippines;
  • Philippine Television Network, Inc.;
  • Philippine Crop Insurance Corp.;
  • Human Settlement and Development Corp.; and
  • National Housing Authority.


Ms. Boncodin on Sunday said the budget and finance departments were to conduct a joint review of the firms before deciding what to do with them. The heads of these agencies should start looking for ways to improve their finances as the government would no longer subsidize "inefficiently run corporations," she said. Among measures being considered are to merge money-losing institutions with other firms, streamlining or deactivating them and transferring some of their functions. Mrs. Arroyo has previously said the Philippines was "in the midst of a fiscal crisis" amid a widening budget deficit and huge debts.

Meanwhile, lawmakers were unanimous in their support to either abolish or privatize money-losing GOCCs and GFIs and urged their immediate review. The review of the operations of the 15 GOCCs and GFIs is long overdue, administration Senators Ralph G. Recto and Manuel B. Villar, Jr. said. "We have long asked for a review of the status of the GOCCs, way back in 2000. If the Senate did not come out with the hearings on the GOCCs, nothing could have happened. But I am glad that the Malacañang has acted on this already," Mr. Recto said in an interview. "These GOCCs and GFIs are not only wallowing in debts and losses, they have been relying hugely on government subsidies to finance their operations. The government should really stop giving subsidies to these ailing GOCCs and GFIs, which are supposed to be profitable and add money to the national coffers -- not contribute to the fiscal problems," Mr. Villar added in a statement. The lawmaker added that the identification of the 15 money-losing agencies which have been suffering lower collection efficiency, insufficient corporate funds for operations and money-losing subsidiaries might only be the tip of the iceberg. Mr. Villar has filed a bill to repeal the provisions in the charters of GOCCs and GFIs pertaining to their executives' current salary structure. This in reaction to the recent Commission on Audit report that annual salaries of some GOCC and GFI heads reached PhP9 million or as much as PhP750,000 a month.

Opposition Sen. Sergio R. Osme§a III, meanwhile, has filed Senate Bill No. 487 or the Sunset Act of 2004 to provide a periodic Congressional review of the efficiency and viability of GOCCs. The proposed legislation provides "systematic review and evaluation of GOCCs" every two years. The examination would be conducted by the Senate Committee on Government Corporations and Public Enterprises, and the House Committee on Government Enterprises and Privatization.

House Deputy Leader Del R. de Guzman of Marikina City and Rep. Vincent K. Garcia of Davao City, for their part, said the money the National Government has been infusing into these losing GOCCs and GFIs could be better used on social services and infrastructure development. Negros Occidental Rep. Alfredo D. Mara§on III added the "financial hemorrhage" of these GOCCs and GFIs -- and government's financial hemorrhage as a consequence when it assumes their debts -- should be stopped immediately. "There is no logic of prolonging their operations when they are not self-sufficient." Related to this, Bacolod City Rep. Monico O. Puentevella has filed House Bill No. 295 that seeks to rationalize the salaries of GOCC and GFI officials. The bill proposes, among others, that GOCC and GFI officials and employees receive compensation not more than twice the compensation received by officials and employees with equivalent rank and position in other government agencies. But a religious group yesterday said abolishing money-losing state firms would not solve the country's fiscal problem.

Bangon Pilipinas National Renewal Movement, headed by former presidential candidate Eduardo C. Villanueva, assailed the administration's move to cut costs, saying it would not close the country's budget deficit. Anthony Ian Cruz, acting communication director of Bangon Pilipinas, said the problem was in the administration's policy of giving a huge chunk of the budget to debt servicing at the expense of other sectors. "Foreign debt should not be treated as sacred cow," Mr. Cruz said. -- AFP with Carina I. Roncesvalles, Judy T. Gulane and Kristine L. Alave



Tighten rates if needed, IMF urges central bank


The International Monetary Fund (IMF) urged the Bangko Sentral ng Pilipinas (central bank) to be vigilant on inflationary pressures that have been building up and move to tighten key policy rates if necessary. According to an IMF staff report on the Philippines, pressures for a rate hike are mounting because of rising global interest rates. "The IMF staff argued that there was a case for monetary tightening given that world interest rates were rising, while the increases in indirect taxation and power prices being considered as part of the reform package would exert upward pressure on inflation," the IMF said in the report completed by an IMF team last August 11, following a post-program meeting with government officials last July 8.

The Bangko Sentral has kept its key policy rates at a 12-year low of 6.75% for the overnight borrowing rate and 9% for the overnight lending rate despite inflationary pressures and a hike in the US Federal Reserve rates. Bangko Sentral tightens rates -- used by banks as benchmarks in pricing loans -- to siphon off cheap money in the system that could otherwise add pressure to inflation.

In maintaining policy rates, monetary authorities argued that pressures were coming from the supply-side such as rising oil prices, which were outside the influence of monetary policy. The IMF said central bank officials were convinced that the sluggish economy limited the potential for second-round effects of supply shocks. The Bangko Sentral also said food prices were expected to ease in the coming months due to improved availability as government agencies move to increase supply in the market. The IMF, however, said Bangko Sentral should keep a close watch on the inflationary environment in the coming months as markets react to the government's reform package. "The staff urged authorities to review the 2005 inflation forecast in the next few months once markets had reacted to the reform package, with a view to tightening monetary policy if necessary," the IMF said in the paper.

The central bank is sticking to its yearend inflation target of 4%-5% for 2004 and 2005 but officials have conceded that pressures could push the upward price swings to as high as 6%. Inflation has been creeping faster than expected because of skyrocketing oil prices. The national inflation rate hit 6.3% in August, its highest level in three years and the central bank expects this to have accelerated faster in September to as much as 6.8%. Last week, oil prices at the New York Mercantile Exchange hit $50.47 per barrel. IMF Resident Representative Vikram Haksar said the Philippines should continue to tap alternative sources of energy to lessen its dependence on oil. "The dependence on oil should be reduced. The government should help promote the shift to other sources of energy," he said yesterday. In its paper, the IMF said should it adjust its inflation target for 2005, the Bangko Sentral should give the public a quantitative explanation on the reasons for the revisions.



Peso up on stocks, low dollar buying

A rosy economic scenario brought about by the government's move to improve its cash flow propped up the Philippine peso yesterday, traders said. Taking its cue from stocks, the peso strengthened by almost three centavos from Friday's close because of positive market sentiments. "Partly, inflows came from the stock market. There were no hints of corporate demands and the season for remittances is almost here," a trader said, adding that banks are seeing a rise in remittances from overseas workers. Coupled with the Bangko Sentral ng Pilipinas' move to halt a peso fall, the local currency was also upbeat during intraday trading, the trader said. "We saw this [central bank's intervention] last week. The central bank can come in anytime when the peso's in danger," he added.

Last week, the peso fell to its record low on seasonal corporate demands and lingering fiscal concerns. Regulators, however, denied any intervention. Meanwhile, the government's thrust to track down the movements of government-owned or -controlled corporations drew praise from the market. "This is a good sign. The government already realizes the impact of the budget deficit," another trader said. At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged weaker by almost three centavos to PhP56.298 after it tracked a 7.5-centavo range. It capped its low at its opening value of PhP56.34. Hitting as high as PhP56.265, the peso settled one centavo lower at PhP56.275 to the dollar. -- Ira P. Pedrasa



Asian bond spreads stronger

HONG KONG -- Asian dollar bond spreads strengthened across the board yesterday, encouraged by the G7 focus on bringing down oil prices and sentiment toward emerging market debt. Group of Seven finance ministers and central bank chiefs on Friday asked oil producers to pump more crude to rein in the price of oil, which last week topped US$50 a barrel, for fear that sustained high prices could imperil world economic growth. "Oil prices are high and remain a risk," the officials from the United States, Britain, Japan, France, Germany, Italy and Canada said in a closing communique after hours of talks. "We call on oil producers to provide adequate supplies to ensure that prices moderate."

Asian dollar bond traders said that all key benchmark credits were trading higher on Monday, after slack trade last week due to public holidays in both South Korea and Hong Kong. "All bonds are up by about five basis points [bps] across the board," said the head of credit trading at a European bank in Hong Kong. Hutchison Whampoa Ltd. bonds due in 2014, among the most liquid of Asian dollar bonds, were trading at 174/170 bps over comparable Treasuries, while PCCW bonds due in 2013 were quoted at 135/125 bps over. South Korean sovereign bonds due in 2014 were trading at 87/82 bps over Treasuries. He said sentiment had turned bullish for the time being towards Asian dollar bonds after spreads had weakened recently due to high oil prices and new debt supply. But he also said the sentiment underpinning the market would fade if US Treasury prices continued to slip.

Last week, US Treasury prices fell for four straight sessions through Friday, as investors began to unwind bets that the world's largest economy would weaken enough to prompt the Federal Reserve to slow the pace of interest rate hikes. Philippine sovereign dollar bond prices were up between a quarter and three-eighths of a point. The ROP '14s were trading at 98.5/99. "The market's slightly firmer despite the weakness in US Treasuries, mainly because the rest of Asia's emerging markets have also performed very well vis-a-vis US Treasuries," said a trader in Manila. -- Reuters



Banco de Oro sets share price at $2

Banco de Oro Universal Bank said yesterday its 25-million five-year redeemable preferred shares series B will have an indicative price of $2 apiece. In a disclosure to the Philippine Stock Exchange, Elmer B. Serrano, Banco de Oro corporate information officer, said the preferred shares will be made available to local investors on a private placement basis. The shares have a par value of PhP10 per share to be issued in US dollars. The Henry Sy-led bank's first-semester net profit climbed 25.3% to PhP831 million from PhP663.2 million in 2003.



China Bank profit at 1.95B pesos as of August

Strengthening its position as one of the leading universal banks in the country, China Banking Corp. posted a 5.6% growth in net earnings to PhP1.95 billion during the first eight months. Improved interest margins, increase in loan bookings, fee-based business and sustained contributions from its trust operations and Treasury-related business gave the bank a boost. Return on average equity of 15.65% for the period continues to be the highest in the banking industry, the bank claimed in a disclosure. Net interest income grew by 33% to PhP3.22 billion from PhP2.42 billion last year. It set aside PhP560 million in loan loss provisions while loan loss reserves reached PhP7.06 billion for a bad loan coverage ratio of 73.7%, one of the highest in the industry.



SEC allows Ayala Corp. to hike bond size to PhP7B from PhP5B


The Securities and Exchange Commission (SEC) has allowed Ayala Corp. to increase the size of its bond issuance to PhP7 billion from PhP5 billion. SEC director Justina Callangan said the commission approved the PhP2-billion hike in the issue size of the bond float yesterday. Ayala Corp., in a disclosure to the Philippine Stock Exchange, confirmed the company amended its registration statement to increase the bond issuance to PhP7 billion from PhP5 billion. "Consequently, the [SEC] has issued an order dated 4 October 2004 rendering effective Ayala's registration statement, as amended, and a permit to offer securities for sale covering the full aggregate principal amounts of the bonds of PhP7 billion," the company said. It said the underwriting agreement it signed with issue managers and underwriters will also be amended.

Ayala Corp.'s issue managers and underwriters are BDO Capital and Investment Corp., BPI Capital Corp., PCI Bank Capital Corp., First Metro Investment Corp., ING Bank, NV, Land Bank of the Philippines and Standard Chartered Bank. Ayala Corp. is set to issue the bonds, which have coupon rate of 12.677%, on Oct. 7. The coupon rate of the bonds would be payable quarterly. The bonds have been assigned a PRS Aaa rating by local ratings agency PhilRatings, Inc. They constitute direct, unconditional, unsecured and unsubordinated peso denominated obligations of Ayala Corp. The offer period for the bonds ended yesterday. Ayala Corp. is issuing the bonds to refinance dollar-denominated bonds that would fall due in 2005. The dollar-denominated bonds, which were issued in 1999 by Ayala's wholly owned subsidiary AC International Finance Ltd., total PhP8.354 million. Ayala Corp. earlier said that it expects net proceeds from the bond issuance to total PhP4.943 billion after deducting issue-related expenses.



National Steel SPV clearance illegal - law firm

A law firm yesterday said it would be "illegal" for the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) to certify the sale of National Steel Corp. to Indian-owned Global Infrastructure Holdings Ltd. as eligible under the Special Purpose Vehicle or SPV law, pointing out a number of "grave and serious violations."

In a letter to BSP Governor Rafael Buenaventura, the Roque and Butuyan Law Offices said National Steel is not a qualified financial institution under Republic Act 9182 or the SPV law. Only the BSP, banks, financing companies, investment houses, government financial institutions, government corporations, and quasi-banking institutions are qualified to avail of SPV perks and exemption privileges. While the creditor-banks have said they would handle the SPV application, the law partnership said it is National Steel that would sell its land, plant, and other assets to Global, "and not the creditor-banks." A certificate of eligibility is crucial to the closure of the National Steel sale, the Philippine National Bank, which heads the group of creditors, earlier said. While an asset purchase agreement was signed last month, a sharing agreement that will apportion the proceeds among the banks and an omnibus agreement which will settle all National Steel's debts will not be signed without the SPV eligibility, as well as an agreement with another creditor, the National Power Corp.

The five-page letter, copies of which were given to Trade Secretary Cesar A.V. Purisima, Finance Secretary Juanita D. Amatong, and Securities and Exchange Commission Chairman Fe Barin, was signed by lawyers Napoleon C. Reyes, Gary S. Mallari, and Rommel B. Bagares. The lawyers did not indicate if they are representing anyone in connection with the National Steel sale. They said the National Steel sale, under which Global will pay PhP13.25 billion in eight years with a PhP1-billion down payment, is not a "true sale" under the law. "The sale of the creditor-banks of their [National Steel] loan receivables to [Global] does not pass the test of a 'true sale' under the SPV law because the creditor-banks retain their liens on the assets of [National Steel]. In fact, under the asset purchase agreement, the creditor-banks retain a 'first-ranking mortgage over the [National Steel] Plant Assets' until Global shall have fully paid the PhP13.25-billion purchase price in eight years." "The fact that the same creditor-banks can still legally foreclose on the [National Steel] assets simply shows that the creditor banks still retain 'effective control' of the assets sold. Therefore, there is no 'true sale' to speak of."

The law firm also asked the BSP to withhold the certificate of eligibility as the government stands to lose an estimated PhP1 billion in taxes. "Based on the way it is structured, the [National Steel] purchase agreement is a scheme thinly veiled with superficial compliance with the SPV law. [The] purchase agreement however, is nothing but an illegal scheme to evade liabilities for payment of capital gains tax, documentary stamps tax, transfer fees, and registration fees, in criminal violation of applicable laws," the lawyers said. They noted that under the SPV law, violators face criminal prosecution with a fine of PhP1 million and imprisonment of up to 12 years.


Meanwhile, two steel manufacturers are fighting over the right to produce aluminum-coated galvanized steel sheets for the local market. Sonic Steel Industries and Steel Corp. of the Philippines (Steelcorp) are embroiled in a case at the Manila Regional Trial Court, with Steelcorp, an affiliate of Philsteel Holdings Corp., claiming that it has exclusive right to manufacture the specially coated sheets under the trade name Galvalume. But Sonic Steel said the patent for the aluminum-zinc-coated steel expired in 1981 giving manufacturers like it to come up with a product using the coating technology. The firm markets GI sheets called Superlume. Manila judge Antonio Eugenio dismissed the case last Thursday on a technicality. He said Sonic Steel chose the wrong legal strategy when it asked the court to resolve the dispute. The case is on appeal. The controversy stemmed from a petition filed by Sonic Steel, which questioned the claim of Steelcorp and its chairman, Abeto A. Uy, that it has the patent to exclusively use the aluminum-zinc coating technology.

The Intellectual Property Office had registered Mr. Uy's "metal sheet ornamentation," the crystalline cluster patterns which naturally form on steel sheets after they are dipped and coated with the aluminum-zinc preparation. Steelcorp supposedly even had the police seize similar products produced by competitors. "What respondent Uy claims as an 'original and ornamental work' or an embellishment of metal sheets used for roofing and other metal products' is a natural byproduct of the process of coating Because this is no 'original' or derivative artistic work, it cannot be copyrightable," said Sonic Steel. In his answer, Mr. Uy said he has a valid copyright that is protected under the Intellectual Property Code. He added a former employee actually leaked his trade secret to Sonic Steel. The Steelcorp chief asked the court to cite Sonic Steel for unfair competition. Before Mr. Eugenio dismissed the case, Sonic Steel was able to obtain a three-day restraining order that lapsed on Sept. 24. -- Felipe F. Salvosa II and Cecille S. Visto



Maynilad creditors want independent auditor, consultant to review rehab plan

By CECILLE S. VISTO, Senior Reporter

Bank creditors of cash-strapped Maynilad Water Services, Inc. have asked the Quezon City Regional Trial Court to appoint an independent auditor and technical consultant to study the feasibility of the utility's revised rehabilitation plan. In a pleading, bridge loan banks, led by BNP Paribas, said there is a need to verify whether Maynilad could indeed return to financial profitability based on the assumptions used in the proposed recovery blueprint.

These financial institutions, which also include Citibank N.A. (Manila branch), Fortis Bank NV-SA, KBC Bank N.V. (Manila branch), UFJ Bank Ltd. and Citicorp International Ltd, said Judge Reynaldo B. Daway should first consult them before naming an auditor and consultant or engineer to ensure those who will be appointed are "trustworthy." "The viability of the revised rehabilitation plan primarily hinges on an impartial validation of the technical aspects of the rehabilitation plan, that is, proposed capital expenditures and monitoring of achievement of infrastructure targets. Maynilad's operation is heavily reliant on capital expenditures to sustain revenue growth. Thus, capital expenditures outlay will affect the business plan and cash flow and accordingly, must be prudently monitored and managed," said the banks through counsel Enrique W. Galang. They said the assessment of the technical aspects of the plan by a competent engineer or consultant is necessary "to ensure an optimal capital expenditures program."

An independent auditor, they noted, is also needed to monitor Maynilad's cash flow and institute internal controls. The auditor will also be tasked to verify the firm's financial data to determine whether Maynilad can meet its rescheduled debt obligations. The appointee should be competent to provide alternative financial projections based on differing business scenarios. "Creditors must be able able to arrive at an informed decision on whether or not the revised rehabilitation plan is fair and equitable. Creditors, however, cannot verify the financial data themselves either because of lack of expertise for such task or lack of immediate access to the books of account and financial records of Maynilad," the banks said. Court-appointed rehabilitation receiver, Rosario S. Bernaldo, is a lawyer and a certified public accountant. The proposed Maynilad rehabilitation plan was referred to her last week for examination.

It is still unknown whether Mr. Daway will grant the request for an independent auditor and consultant to collaborate with Ms. Bernaldo. Ms. Bernaldo was given until Nov. 29 to submit a plan acceptable to the creditors. Based on Maynilad's revised rehabilitation plan, these banks will be paid in two tranches. Those who extended a syndicated loan of $43 million will be reimbursed based on cash flow over a period of seven years with one-year grace period, while pure bridge lenders that extended a $3-million loan will be paid only within one year starting 2004. Maynilad's parent, Benpres Holdings Corp., will still exit from Maynilad to make way for a new operator. It will also write off its entire paid-in capital and advances to Maynilad totaling PhP3.4 billion as it relinquishes its 60% control of the company. State-run Metropolitan Waterworks and Sewerage System (MWSS) will withdraw Maynilad's $120-million performance bond to partly pay for PhP8 billion in unpaid concession fees that accrued from March 2001 to November 2003. The bond guarantors -- led by Hong Kong-based Citicorp. -- will collect $48 million from Maynilad's French partner, Ondeo Services Philippines, Inc., with $39 million to be paid by Maynilad and the remaining $33 million to be converted into equity in the water company.

In a related development, Ondeo told the trial court that Maynilad should correctly account its exposure in the company. It said Ondeo's credits to Maynilad "should be identified and accounted for separately" from the collectibles of affiliates Suez S.A. and Suez Environment. "They are separate and distinct corporations," said Ondeo, represented by lawyer Rodrigo Lope S. Quimbo. Ondeo said Maynilad, in its revised rehabilitation plan, also erroneously converted its exposure and that of its affiliates in pesos. This could result in the companies' incurring of foreign exchange losses since they paid the amounts in foreign currencies. It said the exposure is not limited to PhP3 billion and $54.3 million, as claimed by Maynilad, but is actually $61.13 million for Suez, £13,547.76, $3.02 million and 3.81 million euros for Suez Environment and $6.52 million for Ondeo. Ondeo had earlier agreed to write off PhP1.13 billion in payables from Maynilad as well as $6 million in loans. It also said it could wait for as long as eight years to be paid. Based on the recovery blueprint, Maynilad will only start to repay its foreign joint-venture party after 50% of principal bank loans have been settled.



$50-M funding for train system gets BSP clearance


The Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) has approved the government's $50-million borrowing to finance the rehabilitation project for the southern Metro Manila line of the Philippine National Railways (PNR). A BSP official said the policy-making Monetary Board approved on Thursday the government's borrowing program for the first phase of the railway project. "The board gave its final approval," the official said. The government earlier tapped South Korean multilateral institutions to fund the project. South Korea's Economic Development Cooperation Fund and Export-Import Bank have agreed to provide 10-year loans of $35 million and $15.42 million , respectively, at 2.5% annual interest.

Based on the program, the government will provide a sovereign guarantee on the loans, which will complete the foreign financing for the first phase of the project to upgrade the 32-kilometer South Manila line from Caloocan City to Alabang town in Muntinlupa City. The government will provide the local financing component equivalent to $14.26 million, to be used to secure right-of-way and build additional infrastructure for the railway line. President Gloria Macapagal Arroyo has said that infrastructure improvement in the mass railway transport will be a priority program. The rehabilitation of the railway, however, has long been delayed because of financing and right-of-way issues. The government wants to improve the South Manila line following several fatal accidents.

The Department of Transportation and Communications earlier said the first phase of the project involves fencing of station premises as well as improvement of communications facilities to help prevent accidents on the railway tracks. The rehabilitation of the Caloocan-Alabang line is expected to speed up travel time to 30 minutes for the whole stretch. Under the PNR plan, the upgrade will give the South Manila line a capacity of 187,000 passengers a day, using 21 new diesel-powered railcars to be acquired under the project. The first-phase upgrade would also cover improvement of the railway tracks, strengthening of the old PNR lines, double tracking of the line from Sucat Road in Parañaque City to Alabang and improvement of maintenance equipment.



Asia Brewery workers stage strike


Several workers of Asia Brewery yesterday staged a strike in the brewer's Laguna plant as employers' groups and labor unions signed a deal in Malacañang to implement a strike moratorium. About 40 workers from the glass plant and brewery department of Lucio Tan-controlled Asia Brewery, Inc. in Cabuyao, Laguna mounted the strike to protest management's alleged nonrecognition of their union. The independent union, Tunay na Pagkakaisa ng Manggagawa sa Asia, said in a statement that more than a hundred workers participated in the strike, paralyzing the glass plant and brewery department, and eventually halting production of all other departments in the Cabuyao plant. However, according to reports from National Conciliation and Mediation Board (NCMB) Region 4 conciliator, Francisco Cruz, the operations of the Cabuyao plant were not affected by the strike as only about 40 workers participated in the protests. The firm brews and distributes local and international beer brands. The 320-hectare Cabuyao facility was designed to process an annual production capacity of 4 million hectoliters of beer.

Asia Brewery employs about 900 rank and file workers and about 2000 contractual workers. According to Securities and Exchange Commission data, Asia Brewery's earnings as of 2003 stood at PhP12 billion. The NCMB said the union workers filed a notice of strike as early as Aug. 12 for alleged illegal dismissal and union busting of management. As of Oct. 2, Labor Secretary Patricia A. Sto. Tomas assumed jurisdiction over the case to prevent the situation from worsening. The Labor Secretary assumes jurisdiction over a dispute when it involves an industry indispensable to the national interest. The workers, on the other hand, decried the assumption of jurisdiction. "The assumption of jurisdiction is unreasonable. Asia Brewery makes beer. The provision of assumption of jurisdiction is for labor disputes involving industries indispensable to national interest. Since when is beer a national interest?]," the union workers said in a statement.

In Malacañang yesterday, employers' groups led by the Employers Confederation of the Philippines and labor unions led by the Trade Union Congress of the Philippines inked a deal for a strike moratorium in the face of the fiscal crisis to preserve jobs. The parties agreed to use strikes and lockouts "only as a last resort" in resolving disputes between workers and management.



Ginebra profits edge up 8% on marketing blitz

Thanks to a successful marketing campaign, Ginebra San Miguel, Inc. said it saw an 8% increase in its net income in August. The hard liquor unit of food, beverage and packaging conglomerate San Miguel Corp. said net income rose to PhP103 million in August from PhP95 million previously as sales volume rose steadily in line with intensified marketing and domestic selling programs. Year-to-August net income climbed to PhP1.19 billion from PhP1.31 billion in the same period last year.

The tri-media campaign, dubbed "Bilog Ang Mundo," was designed to enhance the appeal of Ginebra San Miguel to a wider consumer segment. Aside from advertisements on television, radio and print, Ginebra's campaign also includes a text message-based "Share-a-Bilog-Joke" and a 13-week noontime quiz show at television show Masayang Tanghali, Bayan aired on Tuesdays, Thursdays and Saturdays on ABS-CBN Channel 2.

Ginebra's operating income for August stood at PhP174 million, up 17% from PhP158 million in August 2003. Revenues soared 18% as volumes improved 14% on robust exports and strong sales in southern Philippines. An upsurge in sales of Vino Kulafu and Ginebra San Miguel Frasquito propped up domestic sales volume by 5%. Vino Kulafu was still tops in the southern market. Exports closed up 20,000%, supporting earlier reports that it remains the choice gin, beating even those from the US. Double-digit growth was recorded in the year-to-date volumes of Ginebra San Miguel Frasco, Frasquito and Angelito in the northern parts. The company said it embarked on consumption-driven promotions to sustain the sales momentum of Ginebra San Miguel Frasco, Frasquito and Vino Kulafu. It also implemented programs to improve packaging. These include a redesigned bottle for the one-liter Vino Kulafu Jumbo and a "de luxe pourer" for the Gran Matador Brandy 700-ml which also comes in tamper-evident caps. The "de luxe pourer" is a pioneering innovation in the local hard liquor industry to regulate pouring and avoid spillage. -- Roulee Jane F. Calayag



Phisix hits 4-year high, tops 1,800


The Philippine stock market kicked off to a good start this week with the benchmark main index closing at a four-year high of 1,851.60. The market's movement yesterday was consistent with the projections made by analysts over the weekend that the local bourse is poised for strong gains.


Jose Vistan, Jr., research director at AB Capital Securities, Inc., said the market's notable performance resulted from the positioning of investors as they waited for third-quarter earnings results. "Investors were positioning for earnings reports," said Mr. Vistan. Dealers also identified this as a major driving force for the market, noting that most investors bank on stocks that will declare rosy income for the third quarter. Net income results are expected to start coming in this month until the middle of November. The noteworthy rise in the market, he added, was also fed by technical indicators. "Another strong reason for the optimism and the rally in the market is the technicals. Technical indicators are pointing to 1,900 level within this week. This indicates a continuation of the bullish sentiment in the market," explained Mr. Vistan.

The Philippine Stock Exchange composite index (Phisix) rose 3.6% or 64.35 points, almost thrice as much as Friday's 25.68 jump, at 1,851.60. It opened at 1,798.07, also its intra-day low. It was only the second trading day of the month and the Phisix already leapt almost 100 points. The performance of the indices were also positive, sustaining gains from last Friday. All the counters took the same positions with mining still the leader, cornering the largest gains. It was up 95.49 at 2,029.52. The commercial-industrial moved close, advancing 92.54 to 2,933.19. Property soared 35.39 to close at 659.05. Banks and financial services were not to be outdone as it gained 13.23 points at 510.62. Oil rose 0.02 at 1.67. As usual, the small and medium enterprise counter was unchanged at 100. The all-shares index kept up its upward momentum, rising 24.94 to 1,128.79. Trades increased by 2,555 to 6,323. Although the total shares traded decreased slightly from over two billion to 1.5 billion, total value rose to PhP1.7 billion from PhP972.9 million previously.


The market's breadth was positive with advancers taking the lead over decliners by more than 10 times at 85-8. "It was a continuation of the bullish sentiment with gainers beating losers at 8:1," said Mr. Vistan. Unchanged issues were relatively few at 27. Mr. Vistan said investors are already immune to concerns over the government's fiscal deficit. What market makers are looking forward to are actions from the government. "The issue is nothing if one only spouts things and does not act on the problem [referring to the fiscal deficit]," he argued. As the main index soared to a four-year high, players may likely take more pro-active steps to engage the market. "There may be a continuation [of the bullish trend] until at least [today]," added AB Capital's Mr. Vistan.


Foreign investors were net buyers yesterday. Net foreign buying totalling PhP516.2 million more than surpassed total foreign selling of PhP439.5 million. Total foreign buying grew heftier at PhP955.7 million from the PhP532.9 million on October 1. Main board transactions totalling 97.4 million resulted in PhP395.6 million. All the 20 top traded stocks finished high, led by Philippine Long Distance Telephone Co. (PLDT) which closed higher at PhP1,465 on 196,000 shares worth PhP287.7 million. It cornered 17.37% of the market. Mall developer and operator SM Prime Holdings, Inc. (SMPH) of retail tycoon Henry Sy, Sr. ended on the second spot. It rose at seven pesos on 31.6 million shares worth PhP220 million.

Gokongwei-led Digital Telecommunications Philippines, Inc. (Digitel) closed higher at PhP1.16 on 66.2 million shares at PhP72.4 million. Its stock has risen consistently for a fortnight after it was rumored that Hong Kong-based tycoon Li Ka Shing, Asia's richest man, is interested to strike a deal with the telecommunications firm to strengthen its network in the region. Hutchison Whampoa, a subsidiary of Hutchison International, Inc., was reportedly in talks with Digitel for a possible partnership but the rumor was squashed immediately by Digitel president and chief executive Lance Gokongwei. The "B" shares of Southeast Asia's food and beverage giant San Miguel Corp. was was up at PhP71.

Over the weekend, San Miguel and Japanese conglomerate Sumitomo were identified as among the possible buyers of a 40% stake in Del Monte Pacific. San Miguel, a food and beverage conglomerate, did not confirm whether it is interested in the business currently held by insolvent Italian food group Cirio. A company source only told a news agency that it was a "good brand." San Miguel just completed the purchase of a 50% stake in Australian juice company Berri Ltd. which is valued at A$335 million. Other stocks that made it to the top 20 included Ayala firms Bank of the Philippine Islands, Ayala Land, Inc. and Ayala Corp., and Metro Pacific Corp.