H1 results ‘bloated’ by April telecom deal – analyst
NET inflows of foreign direct investment (FDI) slowed sharply in June, dropping 40.9 percent to $238 million from $404 million a year earlier primarily on lower reinvestments of earnings and equity investments, the Bangko Sentral ng Pilipinas (BSP) reported Tuesday.
Despite the June decline, the BSP emphasized that strong FDI performance in the first half of the year showed a net inflow of $4.2 billion, or 94.9 percent higher than the $2.2 billion recorded in the corresponding period in 2015.
“This reflected investors’ confidence in the Philippine economy on the back of sound macroeconomic fundamentals and robust growth,” the BSP said in a statement. “In particular, investments of parent companies abroad in debt instruments issued by local affiliates (or intercompany borrowings) contributed a large part to the increase in FDI as these transactions more than doubled to $2.4 billion from $1.1 billion.”
An analyst, however, pointed out that the first-half net inflow figure was likely bloated by the massive P69.1 billion buyout of San Miguel Corp’s telecom assets by Globe and PLDT in the month of April.
Singapore-based Singtel owns 47.19 percent of Globe’s common shares and has a total ownership stake of 20.13 percent, while PLDT’s largest shareholder, the Hong Kong-based First Pacific Group, holds a 25.57 percent stake in the Philippines’ largest telecommunications company.
For June, FDI declined in all categories except net investments in debt instruments, according to the BSP data. Reinvestment of earnings declined by 7.8 percent year-on-year to $62 million from $67 million a year earlier, and pulled reinvestments into negative territory for the first half of the year, shrinking 0.7 percent for the January-June period to $382 million from $385 million in H1 2015.
Equity placements other than debt instruments dropped by 88.4 percent year-on-year, registering just $36 million compared with $309 million a year earlier, and were outstripped by equity withdrawals of $41 million, resulting in a net decline of $5 million. For the six-month period, net equity placements stood at $1.45 billion, more than double the $682 million net registered in the first half of 2015.
Equity and investment fund share placements also dropped sharply, registering just $56 million in June compared with $282 million the previous year, a decline of 80 percent.
The one bright spot in June was in net investment in debt instruments, either investments by parent companies abroad in local affiliates’ debt instruments or intercompany borrowings, which rose 49.4 percent to $182 million from $122 million in the same month a year earlier.
While agreeing that growth is generally strong due to positive fundamentals, BPI associate economist Nicholas Antonio Mapa cautioned against reading too much into the upbeat H1 results.
“First-half FDI may look bloated due to a one-time surge in April FDI, possibly linked to a major telecommunications deal [the Globe-PLDT purchase of San Miguel Corp’s telecom assets],” Mapa explained.
“Other than that, FDI trends are in line with the norm.”
Likewise, Mapa saw little long-term significance in the June drop, which several other analysts suggested might have been due to a “wait and see” attitude among investors as June was the month President Rodrigo Duterte took office.
“I wouldn’t look too much into the fall in June as FDI tends to be ‘chunky’ in the sense that certain projects may be implemented in certain months and thus there won’t be much seasonality in the data,” Mapa said, highlighting the impact of the Globe-PLDT-SMC deal on April’s and H1’s results.
While that may have made the H1 results appear rosier than they actually were, Mapa was still optimistic about longer-term trends. “The sustained growth is consistent with the upbeat assessment of our growth prospects on the economic front given superior fundamentals,” he added.