S&P threatens Philippines with rating downgrade

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philippines_economy
Fish factory in the Philippines

The government in Manila has been put under pressure by rating agency Standard & Poor’s (S&P) that the Philippines might lose it “investment grade” rating it has been granted on May 2, 2013.

S&P said in a report released on August 16 that the country could lose the BB+ rating if one of the Philippines’ few family-run business and industry conglomerates could not bring its debt situation under control, without naming the group.

The agency said that the structure of the country’s economy, which is heavily dependent on family-owned conglomerates, was “a source of vulnerability.”

“We may… lower the ratings if problems at one of the large conglomerates impair investor confidence,” S&P said in the analysis.

Earlier this year, the International Monetary Fund (IMF) has warned the Philippines that its economy faces a risk that a “highly-leveraged conglomerate”, or a part of it, would default on its “foreign obligations and/or domestic loans”.

“With a handful of large conglomerates following broadly similar business models, and bank exposure to them equivalent to a sizeable share of total capital, systemic risks are heightened, “ the IMF said

While the conglomerate hasn’t been named, it is widely believed that both S&P and IMF are addressing San Miguel Corporation, the largest diversified business group in the Philippines.

The group has just recently secured a $1.3 billion loan facility from 5 international bank to pay off its existing debts and refinance its exiting loans. In April, San Miguel generated $800 million from the largest-ever issuance of a dollar-denominated bond by a Philippine company. It forms part of a $2-billion medium-term notes programme of the group.

San Miguel has been under constant credit watch by S&P and has received several downgrades in the past. San Miguel, as a response, said that S&P “does not understand the group’s finances” and does count more debts than actually exist.

The company is currently undergoing a 5 -year, $35-billion investment programme that will make it the largest investor in the Philippines, spending an average of up to $7 billion every year until 2017.

S&P became the second major rating firm to give the Philippines an “investment grade” rating after Fitch Ratings in May 2013. Moody’s Investor Service still considers Philippine government debt as “junk” investments, although the country is on positive watch for a possible upgrade.

S&P also raised concerns over the Philippine central bank’s ability to manage capital inflows from abroad that could cause overheating in the economy and create asset price bubbles.

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Reading Time: 2 minutes

Fish factory in the Philippines

The government in Manila has been put under pressure by rating agency Standard & Poor’s (S&P) that the Philippines might lose it “investment grade” rating it has been granted on May 2, 2013.

Reading Time: 2 minutes

philippines_economy
Fish factory in the Philippines

The government in Manila has been put under pressure by rating agency Standard & Poor’s (S&P) that the Philippines might lose it “investment grade” rating it has been granted on May 2, 2013.

S&P said in a report released on August 16 that the country could lose the BB+ rating if one of the Philippines’ few family-run business and industry conglomerates could not bring its debt situation under control, without naming the group.

The agency said that the structure of the country’s economy, which is heavily dependent on family-owned conglomerates, was “a source of vulnerability.”

“We may… lower the ratings if problems at one of the large conglomerates impair investor confidence,” S&P said in the analysis.

Earlier this year, the International Monetary Fund (IMF) has warned the Philippines that its economy faces a risk that a “highly-leveraged conglomerate”, or a part of it, would default on its “foreign obligations and/or domestic loans”.

“With a handful of large conglomerates following broadly similar business models, and bank exposure to them equivalent to a sizeable share of total capital, systemic risks are heightened, “ the IMF said

While the conglomerate hasn’t been named, it is widely believed that both S&P and IMF are addressing San Miguel Corporation, the largest diversified business group in the Philippines.

The group has just recently secured a $1.3 billion loan facility from 5 international bank to pay off its existing debts and refinance its exiting loans. In April, San Miguel generated $800 million from the largest-ever issuance of a dollar-denominated bond by a Philippine company. It forms part of a $2-billion medium-term notes programme of the group.

San Miguel has been under constant credit watch by S&P and has received several downgrades in the past. San Miguel, as a response, said that S&P “does not understand the group’s finances” and does count more debts than actually exist.

The company is currently undergoing a 5 -year, $35-billion investment programme that will make it the largest investor in the Philippines, spending an average of up to $7 billion every year until 2017.

S&P became the second major rating firm to give the Philippines an “investment grade” rating after Fitch Ratings in May 2013. Moody’s Investor Service still considers Philippine government debt as “junk” investments, although the country is on positive watch for a possible upgrade.

S&P also raised concerns over the Philippine central bank’s ability to manage capital inflows from abroad that could cause overheating in the economy and create asset price bubbles.

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