THE Philippines’ biggest companies have the highest debt growth among the countries in the Association of Southeast Asian Nations (Asean) as local firms continue their expansion efforts ahead of the Asean Economic Community (AEC), international credit rating agency Standard & Poor’s Rating Services (S&P) said.
Xavier Jean, S&P director for Corporate Ratings in the Asia Pacific, said in a press briefing that the 17 top companies in the Philippines have tripled their aggregate net debt between 2008 and the first quarter this year as companies expand in preparation for the AEC integration next year.
Jean said domestic blue-chip companies were focused on more investments in facilities, mergers and acquisitions and expanding their reach in foreign markets to increase leverage and competitiveness as AEC 2015 approaches.
“Debt growing in itself is not necessarily a problem as the companies’ earnings are also growing. But we observe in the Philippines, the pace of the growth of debt has been significantly faster than the pace of earnings growth,” Jean said.
“Before, it took the Philippines two years to pay debts, the same for the rest of top Asean companies. But now, it takes three and a half years for Philippine companies to pay off their debts. This is higher than the Asean as a whole,” he added.
S&P examined 100 top companies in Asean, 17 of which are in the Philippines. The 17 companies include Aboitiz Power Corp., Alliance Global Group Inc., Ayala Corp., Ayala Land Inc., DMCI Holdings Inc., Globe Telecom Inc., International Container Teminal Services Inc., JG Summit Holdings Inc., Jollibee Foods Corp., Lopez Holdings Corp., Manila Electric Co. , PAL Holdings Inc., Petron Corp., Philippine Long Distance Telephone Co., San Migjuel Corp., SM Prime Holdings Inc., and Universal Robina Corp.
Among the 17 companies, Jean said “about a third” were more leveraged than the other two-thirds, which are “more conservative” and preferred not to engage much in the debt market.
The credit rating agency noted that the median ratio of net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) grew to about 3.5 times at the end of 2013 from 1.9 times at the end of 2008 as companies’ revenues and cash flows “have not kept up with rising debt.”
The country’s median ratio is the highest among the Asean countries, according to the S&P data.
“The Philippine companies we reviewed displayed a wide variation in funding strategies and financial risk profiles. About 30 percent of the companies had large debt loads (often due to debt-funded spending or acquisitions), and about 25 percent of the companies had conservatives balance sheets with moderate to low debt levels,” Jean said.
Following the Philippines, the largest Singapore companies are the second highest in terms of debt growth with a 3.3 times median ratio, while Indonesian companies came in third.
For the next 12 months, the big Philippine companies are expected to suffer a decline in credit quality as earnings growth lags the growth of corporate debt.
“We expect the credit quality to decline further over the next 12 months. We see no sign of a slowdown in spending as the Philippine companies continue to invest, mostly in mergers and acquisitions, to leverage their businesses,” Jean said.