Corporate fund-raising up 31.2% to P210B in 7 months

Private corporations kept tapping the domestic equities and bond markets to raise funds for their expansion on expectations that the economy would rebound in the second half of 2011, the Bangko Sentral ng Pilipinas (BSP) reported Thursday. BSP data show that capital raising activities of corporate issuers at the Philippine Stock Exchange (PSE) and the domestic bond market rose by 31.2 percent to P210 billion in the first seven months of the year, up from P160 billion in the same period last year. Capital raising activities in the PSE had jumped 54.5 percent to P68 billion from January to July this year compared to P44 billion in the same period last year as foreign capital continued to pour into emerging market economies including the Philippines. But the BSP said corporate bond issuance had increased by 22.4 percent to P142 billion in the first seven months of the year from P116 billion a year ago. Compared to stocks, corporate bonds are more stable because interest is paid as scheduled and investors get steady return. BSP data revealed that “hot money" – the net inflow of foreign portfolio investments – had jumped 230 percent to $3.06 billion in the first eight months of the year from $925.96 million in the same period last year, despite foreign capital influx having slowed over the past few weeks. Gross inflow of hot money more than doubled to $11.834 billion in the first eight months of the year from $5.766 billion in the same period last year. Major sources of these foreign portfolio investments included Singapore, the United Kingdom, US, Luxemburg, and Hong Kong. On the other hand, outflows rose 81.3 percent to $8.776 billion from $4.84 billion. Investments in PSE-listed shares grew 51.2 percent to $6.2 billion from January to August compared to $4.1 billion in the same period last year, reported the BSP. The bulk of investments ($1.5 billion) went to holding firms, followed by banks ($1.1 billion), property developers ($894 million), telecom providers ($788 million), and utility companies ($734 million). Moreover, investments in peso-denominated government securities more than quadrupled to $5.4 billion from $1.2 billion, while investments in peso time deposits totaled $293 million, as well as in trust funds with $6 million and money market instruments with $6 million. Hot money, inflation pressure, GDP BSP Governor Amando Tetangco Jr. had said that due to Europe’s sovereign debt crisis and US debt concerns, it appeared that emerging markets in Asia including the Philippines would carry on attracting foreign capital inflows despite the massive outflows over the past few weeks. But he assured that monetary authorities would remain vigilant for possible reversals of capital flows. Considering that excessive liquidity resulting from strong capital inflows might increase inflation pressures, the BSP's Monetary Board raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5. So now, overnight borrowing rate is pegged at 4.50 percent while the overnight lending rate is at 6.50 percent. Monetary authorities said strong liquidity in the financial system amid continued strong capital inflows blunted the impact of adjustments in the monetary policy stance on market interest rates. In the third quarter of 2011, the BSP had raised the reserve requirement for banks by 200 percentage points to 21 percent from 19 percent as a preemptive move to counter any additional inflationary pressures from excessive liquidity by siphoning off an estimated P70 billion from the financial system. The Philippines gross domestic product (GDP) shrank to 4.0 percent from 8.7 percent in the same eight-month period last year due to weak global trade and underspending by the Aquino administration. But the Development Budget Coordination Committee (DBCC) still expects the country's GDP to expand to between five percent and six percent by yearend. The country barely escaped recession in 2009 when its GDP growth slowed to 1.1 percent from 3.8 percent in 2008 during the global financial crisis. Despite that, GDP still managed to expand by 7.6 percent last year, resulting in the Philippine economy posting its strongest economic growth in 34 years. — MRT, GMA News