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New door opens
The Maharlika Investment Fund bill after months of deliberation is as good as signed. The next step would be the crafting of the implementing rules and regulations or IRR where the nitty-gritty of the law will be addressed. The IRR will be prepared by economic managers. President Ferdinand “Bongbong” Marcos Jr. will then pick the people who will comprise the Maharlika Investment Corp. or MIC that the law mandates will manage the fund. The MIC will manage the sovereign wealth fund that will invest in a wide range of assets, including foreign currencies, fixed-income instruments, domestic and foreign corporate bonds, commercial real estate, and infrastructure, based on the provisions of the law. The battleground for the MIF thus returns to the Executive branch as detractors now have the economic managers in their crosshairs as the IRR is being drafted. One of the prime movers of the MIF, Albay Rep. Joey Salceda, said the IRR will flesh out the specifics of the crucial fund build-up and the forming of the MIC, such as the company’s regulation by the Civil Service Commission, the listing of the MIF in the stock market, and allowing multilateral financing institutions like the World Bank and Asian Development Bank to be strategic partners of the MIF. “I congratulate House Speaker Ferdinand Martin Romualdez, Chairman Irwin Tieng, and our Senate counterparts. I will continue to offer what I can by way of prior experience and subject matter expertise in the drafting of the IRR,” Salceda said. Congress ratified the bill before adjourning its session last 31 May but the final copy had to be refined following intrigues hurled by unrelenting critics who deemed it unconstitutional primarily due to the differing prescriptive periods for filing charges related to irregularities. The discrepancies proved to be clerical errors and not a reason to veto the bill as the inconsolable minority had demanded. The MIF comes at a propitious period after the economy grew by 7.6 percent and 7.2 percent in the third and fourth quarters, respectively, and 6.4 percent in the first quarter of this year — numbers that show the country has among the fastest development clips in the world. Finance Secretary Benjamin Diokno expects the MIF to be in full operation before the end of the year. The P125-billion seed fund will be drawn from the Land Bank of the Philippines, the Development Bank of the Philippines, and the national government. The national government’s contribution will come from Bangko Sentral ng Pilipinas dividends, its share in the income of the Philippine Amusement and Gaming Corp., privatization proceeds, and royalties and special assessments. Being looked into is channeling Malampaya natural gas earnings to bolster the fund. The MIF will initially have at its disposal P75 billion by the end of the year, which will come from Landbank and DBP and may forthwith be invested in several ventures or the capital markets. Fund managers estimate a return of over 10 percent just for the initial P75-billion investment. Economic managers envision the MIF as creating a new source of financing for the government which now mainly relies on tax revenues and borrowings to plug the fiscal gap. The MIF will free up the government’s fiscal space as the burden of borrowing is reduced with the sovereign wealth fund augmenting the government’s resources. Another MIF function will be to accelerate investments in development projects such as infrastructure through tie-ups with capitalists and other sovereign funds. The perennial budget deficits, which are the culprit in the debt pile-up, may soon be a thing of the past when the MIF goes full throttle. The post New door opens appeared first on Daily Tribune......»»
Swimming in debt
Many Philippine companies are swimming in debt that loan defaults are staring them and their creditors in the face, the International Monetary Fund warned this week, following the Financial Stability Conference held in Cebu recently under the auspices of the Bangko Sentral ng Pilipinas. With borrowings nearing levels where companies may be unable to service their debts, the IMF warned that the problem is so serious that it could have far-reaching consequences not only for the companies involved but for the Philippine economy itself. In the paper derived by an IMF team from the conference, the Washington-based multilateral lender said that the indebtedness malaise afflicts not only the Philippines but many other Asian countries like Malaysia and Hong Kong. “While we expect Asia’s growth to hold up — contributing two-thirds of global growth this year — central banks may keep rates higher for longer to tame inflation and financial conditions may tighten further,” the IMF said. “In particular, industries that rapidly increased leverage while interest rates were low are now a key concern, especially in Asia,” it added. The IMF pointed out that 3.3 percent of corporate groups in the Philippines have an interest cover ratio, or ICR, of less than one, putting them on the brink of default. As a measure of how much corporate earnings can cover debt interest payments, an ICR of one or below means that a company may succumb to loan default. Only 21.9 percent of companies in the Philippines have an ICR of 4, which means they can easily meet their loan obligations. “The Philippines, Malaysia and Hong Kong had large shares of debt in companies with coverage ratios just above one, which could potentially become susceptible to default with rising borrowing costs,” the IMF said. A number of factors are seen to have contributed to the rise in corporate debt in the Philippines, including the low-interest rates prevailing in past years that made it cheaper for companies to borrow money. One other factor is the economic growth that the Philippines has experienced — with gross domestic product growing from 5.7 percent in 2021 and 7.6 percent in 2022. Economic growth raises confidence among businessmen, increasing their appetite to borrow money to fund expansion. The rise in corporate debt is a problem because it makes companies more vulnerable to financial shocks. If interest rates rise or if economic growth slows, companies with high levels of debt may find it difficult to make their debt payments. This could lead to defaults, which could in turn lead to a financial crisis. To stem a looming downturn, the Philippine government and the BSP will have to take steps to help address the corporate debt crisis alarm bell that the IMF has sounded. As pointed out by the IMF, the BSP may consider raising interest rates that would make it more expensive for companies to borrow money, thereby depressing their taste for more loans. Probably as a last resort, the government and the BSP may also throw lifelines to companies struggling to make their debt payments, but such an intervention should be judicious as taxpayer money would be involved. The government may well choose to gamble to help companies stave off default if only to avert a financial crisis. The companies must also do their part by reducing their levels of debt through drastic measures like cutting costs, increasing sales or selling non-performing assets to make payments. Companies that are able to reduce their debt levels will be less vulnerable to financial shocks and will be better able to weather economic downturns. The corporate debt crisis is a serious problem, but it is not insurmountable. With the right policies and actions, the Philippine government, the BSP, and the companies can work together to address the problem and prevent a financial crisis. The post Swimming in debt appeared first on Daily Tribune......»»
Marionette’s woe
The agenda of the detractors of the pivotal Malampaya natural gas project was for the deal, Service Contract 38, to lapse next year which places the assets in the government’s hands and then a favored private group comes in to buy the assets at a huge discount. The potential of the Malampaya--Camago is too promising, however, for the carpetbaggers to succeed since serious investors are willing to have the government partner for the project. Former Philippine National Oil Company chief Eduardo Mañalac, the designated attack dog of the detractors, said it should have been the government, through PNOC-Exploration Corp., buying out the foreign partners Shell and Chevron. PNOC-EC has a pre-emptive right as a 10 percent partner in the Malampaya consortium, giving it the option to match any offers to buy out any of the partners. The idea of the government taking over the project does not hold water. The actual cost to buy up the shares of the two foreign oil giants which own 90 percent of the Malampaya service providers would cost a hefty $1 billion. The government would need another $500 million to $600 million to explore and develop additional production wells. Coming from the pandemic era, such an amount spent on one project that has no immediate benefit to the public and obtained from borrowings would be preposterous. Pain and gains in business are best left to the private sector which has the resources to use while pursuing their profit motive. The real target of Manalac’s rant and rave, however, was to scuttle the deals and not extend SC 38 beyond its expiration next year, opening the door for wheeling and dealing in which the government assumes the Malampaya assets or if a new contract is dealt out. Mañalac can’t be trusted in his supposed role as a guardian of key state assets that he wanted to portray. During his stint as a concurrent energy undersecretary and PNOC chief, he tried to arrange the sale of five percent of PNOC-EC to a South Korean firm. The deal fell through after the National Economic and Development Authority or NEDA, under then Socioeconomic Planning Secretary Romulo Neri, junked the proposal and recommended to President Gloria Macapagal-Arroyo that the government keep its stake in PNOC-EC intact. At an online forum hosted by National Youth Movement for the West Philippine Sea, Mañalac gave an excuse that the aborted sale was an imposition by the Department of Energy. It was also supposedly a bid to recoup a P100-million loan spent on acquiring a 10 percent stake in the state-owned company and to top it all, Mañalac said he supported the sale “against his will.” “Of course, I was against it but you have to follow, you argue against it but at the end of the day, you tried to obey the instructions as best as you can,” Mañalac’s account which he wanted to fool the public into believing. He belatedly announcing that his actions were against his will reveals his foibles. The pursuit of the former energy official is off-tangent to the idea of maximizing benefits to the government. With the private sector as the controlling interest in the consortium, the government collects 60 percent of the net proceeds from Malampaya’s sale and it is spared of the huge amount needed for exploration and development. Pray tell how the current setup will have government missing out as Mañalac puts it. The truth is those who are pulling Mañalac’s strings wanted to obtain the energy industry jewel at a dirt-cheap price. The post Marionette’s woe appeared first on Daily Tribune......»»
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BTr raises P120 billion from T-bond sale
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