Credit ratings firm Moody’s Investors Service expects more Philippine companies to tap the offshore bond market in the coming years amid strong appetite from global investors because of the country’s strong macro fundamentals.
“Given the improving sovereign rating trends and clear investor demand for the country’s paper, we believe that an increasing number of Philippine corporate issuances could look to the international markets to take advantage of favorable sentiment,” it stated.
Moody’s said global investors are eager to diversify their portfolios while rising merger and acquisition (M&A) activity by Philippine companies will support the need for foreign financing.
Moreover, it said that as the Philippines is also a net beneficiary of lower global commodity prices, investors appear keen to gain exposure in the country.
In its latest “Inside Asean” report, Moody’s said that the country’s robust economic growth prospects, improving fiscal and government debt ratios, and healthy external position have underpinned a material re-rating of the country’s sovereign credit profile in recent years.
The ratings firm cited the government’s successful issuance of $2 billion worth of 25-year bonds in January with a yield of 3.95 percent, lower than the initial guidance of 4.2 percent, despite the broad-based increase in financial volatility observed in the region since the turn of the year.
It said the rising M&A trend is also supportive of long-term issuances. The credit rater expects Philippine corporates to explore overseas investment opportunities in a bid to bolster future earnings growth potential.
“In recent years, we have seen a steady increase in the number of outbound M&A deals by Philippine corporates and, despite a noticeable dip last year, the overall dollar value of deals has been on a multi-year rise,” it explained.
However, Moody’s believes that domestic markets will remain the primary financing channel.
”A sudden surge in new offshore issuances is unlikely given that domestic liquidity conditions remain broadly accommodative,” it stated.
It pointed out that while the Philippine foreign currency bond market is relatively large by regional standards when measured against nominal gross domestic product, it is heavily dominated by the sovereign.
“For the most part, Philippine corporates rely on bank lending and domestic bond issuances to meet their financing needs, and these channels are likely to remain accommodative in 2015,” Moody’s said.
In December last year, Moody’s upgraded the Philippines’ government bond rating to Baa2 from Baa3, based on its assessment that there is an ongoing debt reduction, continued favorable prospects for strong economic growth, and limited vulnerabilities in the country amid global risks affecting emerging markets.