Big corporates are likely to tap the debt market anew amid record low interest rates to raise funds, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) said.
“We expected aggressive fundraising by large firms in the bond market as interest rates remain very low,” FMIC and UA&P said in their joint report released on Thursday.
Overnight reverse repurchase facility currently stands at 2 percent after the Bangko Sentral ng Pilipinas (BSP) cut it by a total of 200 basis points to inject more liquidity in the financial system.
“Domestically, we do not see a case for major upward movement of interest rates, considering that the economy will likely remain negative even up to first quarter,” the study noted.
The Philippine Statistics Authority reported on Thursday that 2020 fourth GDP declined by 8.3 percent, bringing the full-year figure to -9.5 percent. Despite the GDP plunge—the deepest since 1947—ING Bank Manila said in a report on Thursday that the authorities are not expected to “whip out any form of stimulus to offset the downturn, both on the monetary or fiscal front.” ING noted that the Bangko Sentral ng Pilipinas (BSP) has already frontloaded the rate cuts last year.
FMIC and UA&P noted that big firms are also seeking another source of funding as banks “appear still hesitant in lending,” especially in the first quarter.
To recall, the growth of outstanding loans extended by universal and commercial banks declined further to 0.3 percent in November last year from 1.8 percent the previous month, according to BSP.
“Banks will move once they see firms begin to ramp up output on a monthly basis,” FMIC and UA&P said. In an online briefing earlier this year, FMIC Investment Banking Head Daniel D. Camacho said debt issuances from private sector bridged the gap in bank borrowing in 2020.
He noted that private issuances rose by nearly 8 percent to P1.63 trillion in 2020 from P1.51 trillion in the previous year. This, as bank loans dropped by 3.21 percent to P8.42 trillion last year from P8.7 trillion in 2019. In December, total trading volume for corporate bonds reached P5.8 billion, a 53-percent improvement from P3.8 billion in the previous month, amid the holiday season. Full-year trading volume last year rose by 65.9 percent to P75.9 billion from P67.1 billion in 2019.
Local debt capital market issuances, meanwhile, nearly doubled to P1.22 trillion last year from P630 billion in 2019.
The bulk or 68 percent of the issuances last year came from government bonds amounting to P830 billion, which is more than threefold compared to P241 billion in 2019.
This was followed by bank issuances of P259 billion—nearly flat from P260 billion in 2019—accounting for 21 percent. Corporate bonds, comprising nearly 9 percent, grew by over 20 percent to P104 billion last year from P86 billion in 2019. Preferred shares accounted for the remaining P22-billion of issuances.
Offshore issuances, meanwhile, doubled to nearly $9 billion year-on-year in 2020.
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