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...this Hanjin situation has affected the integrity of the financial sector significantly in the last couple of days hence proving its importance

Gov’t mulls takeover of Hanjin’s shipyard

OPTIONS for a resolution of debt troubles of Hanjin Heavy Industries and Construction Philippines (HHIC-Phil), which has entered rehabilitation, now include a possible government takeover of its facilities in Subic Bay Freeport in Central Luzon, the country’s Defense chief said on Wednesday.

Wednesday also saw a senior central bank official saying that banks may have to be more “proactive” in monitoring the financial condition of borrowers to which they have significant exposure, while a HHIC-Phil official said the company could return to profit three years from the entry of an investor.

During Senate deliberations on the proposed Department of National Defense 2019 budget, Defense Secretary Delfin N. Lorenzana said he posed the idea to President Rodrigo R. Duterte on Tuesday evening, adding that the latter was “very receptive” to the idea.

“While we sympathize with the financial woes of Hanjin, we are excited really by this development because we see the possibility of having our own shipbuilding capacity in the Philippines, especially large ships like what’s being built in Hanjin’s shipyard in Subic,” Mr. Lorenzana said.

“And so, the Flag Officer-in-Command Admiral (Robert A.) Empedrad reached out to me — I think yesterday or the other day — and I said, ‘why not we takeover the Hanjin [facility] and give it to the Navy to manage?’” he recalled.

“And so I brought this idea to the President last night and he’s very receptive to the idea. Although the Secretary of Finance… (Carlos G.) Dominguez (III) is also thinking of… how the local banks can recoup their investment there…”

Presidential Spokesperson Salvador S. Panelo declined to comment when asked to verify the development.

The South Korean shipbuilder’s debts to five of the country’s biggest banks have been estimated to total some $412-million.

Trade Undersecretary and Board of Investments managing director Ceferino S. Rodolfo said last week that two Chinese shipbuilders have expressed interest in acquiring HHIC-Phil.

Mr. Empedrad told senators in the hearing that the Philippine Navy “cannot take over totally the entire Hanjin [shipyard] but a portion probably…”

Senate Majority Leader Juan Miguel F. Zubiri proposed for management of the shipbuilding facility to be given to a private entity while the government takes a majority stake. “Instead of using funds to (buy ships) abroad, we are earning. Filipinos are building our ships and it’s under the control of the Department of National Defense. I think it’s a win-win solution,” he said.

Senator Panfilo M. Lacson, one of the Senate Finance committee’s vice-chairmen, said the P75 billion added to the Department of Public Works and Highways 2019 could help cover the government takeover. “There’s… P75 billion in the proposed budget… What if the government will just take over Hanjin[’s shipyard] and then bid out to possible partners, private entities, then let the Philippine Navy partner with private entity?” Mr. Lacson said.

The local banking sector will not reel from HHIC-Phil’s $412-million loan default, the central bank said on Wednesday, even as one of its senior officials flagged the need for lenders to be more “proactive” in vetting huge loans.

The Bangko Sentral ng Pilipinas (BSP) moved anew to calm markets, assuring that the five banks with big loan collectibles from the South Korean shipbuilder have what it takes to remain on solid ground.

“based on the results of the BSP’s stress-testing exercise, an assumed write-off of the loan exposures to Hanjin will have minimal impact on the industry’s CAR (capital adequacy ratio),” BSP said in a statement.

Industry-wide CAR stood at 15.36% as of September 2018, well above the eight percent global standard and the central bank’s 10% requirement, while liquidity coverage was more than enough at 157.6%, data showed.

The Rizal Commercial Banking Corp. (RCBC) had the biggest exposure with $145 million lent to HHIC-Phil, followed by the state-run Land Bank of the Philippines with $85 million; the Metropolitan Bank & Trust Co. (Metrobank) with $70 million; BDO Unibank, Inc. with $60 million and the Bank of the Philippine Islands (BPI) at $52 million.

“Based on the latest data, the BSP is confident about the local banks’ ability to manage this specific challenge. They are also equipped to handle the negotiations required to complete Hanjin’s corporate restructuring while remaining compliant with prudential regulations,” the central bank added.

Asked whether banks will need to tighten lending standards after Hanjin’s case, BSP Deputy Governor Chuchi G. Fonacier replied in a text message: “Partly yes, and partly on really being proactive in monitoring the financial condition and other developments of their borrowers, especially those with large exposures.”

In a separate statement on Wednesday, international debt watcher Fitch Ratings said that Philippine banks will not be shaken by HHIC-Phil’s problem debts, but noted that lenders with “more significant exposure” could see some pressure on their credit rating.

Referring to RCBC’s exposure to HHIC-Phil, Fitch noted that “[t]he full amount exceeds its 2017 net profit, and provisioning on these loans could result in the bank reporting at least one quarterly loss, implying some risk of capital impairment, although we do not expect the bank to set aside the full amount of its exposure.”

“The exposure of the three largest banks — BPI, BDO and Metrobank — is more manageable relative to their loan books and pre-provision profits,” the credit rater added.

“The sector- and company-specific causes suggest this case is unlikely to indicate broader stress across banks’ loan books…”

A HHIC-Phil executive, who asked not to be named, said by phone on Tuesday that the company expects to return to profit three years after the entry of an investor.

“We really see ourselves profiting after three years. We just have to be funded $12 million monthly,” the source said. “We’re open to any tie-up as long as the company can take care of the debt and provide for the operating capital.”

Among others, HHIC-Phil is banking on developments like the United Nations International Maritime Organization’s policy to cut the sulfur content of ship fuel to 0.5% from the current 3.5%. “That policy will take effect in 2020 and we can really make profit from that as there is only a small number of ships that meet that requirement,” the executive said. 


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...this is not a good news

Philippine GDP growth seen slowing

PHILIPPINE economic growth will likely slow up to this year, according to latest estimates of a macroeconomic surveillance organization for the Association of Southeast Asian Nations (ASEAN) Plus 3 economies and HSBC Private Bank.

The ASEAN+3 Macroeconomic Research Office (AMRO) trimmed its Philippine GDP growth projections for 2018 and 2019.

AMRO sees gross domestic product (GDP) growth settling at 6.4% in 2018 and 6.3% in 2019 based on its January update of the ASEAN+3 Regional Economic Outlook (AREO) published on Wednesday.

This is slightly down from the 6.5% and 6.4% estimates for those years in AMRO’s October report.

If realized, growth will slow from the 6.7% logged in 2017.

This compares with the ASEAN+3 estimated average of 5.3% for 2018, down from 5.4% previously, and 5.1% for 2019, which was kept from the previous report.

AMRO’s inflation forecast for the Philippines in 2019 was also revised to three percent from 4.3%. This will moderate from the 5.2% inflation clocked in 2018, which breached the central bank’s 2-4% target range.

It is also faster than the region’s two percent and 2.2% average inflation estimates for 2018 and 2019, respectively — changed from 2.1% and two percent forecasts for the same respective years.

“Amid moderate growth performance with inflation starting to ease, some economies in the region have kept their interest rates on hold during their most recent policy meetings,” the report read, noting that “[t]he Philippines maintained the policy rate at 4.75%, following four rate rises since May, as the peso has strengthened slightly while inflation has started to moderate.”

Headline inflation reached a peak of 6.7% in September and October 2018, the fastest pace in nine years. The overall rise in prices of widely used goods slowed to six percent in November and eased further to 5.1% in December.

The surge in consumer prices has been blamed for slower-than-expected economic growth, traced to higher and new excise taxes on select goods and high world fuel prices.

Malacañang in September issued orders removing non-tariff barriers and streamlining procedures for food distribution.

The Bangko Sentral ng Pilipinas (BSP) raised interest rates by a total of 175 basis points in five Monetary Board meetings from May to November, and kept policy rates steady in its final meeting for 2018 in December.

GDP growth averaged 6.3% in the first three quarters of 2018, against the government’s downward-adjusted target of 6.5-6.9% for that year. For 2019, the target is at 7-8%.

AMRO’s latest forecasts compares with the World Bank’s 6.4% and 6.5% for 2018 and 2019 respectively, the Asian Development Bank’s 6.4% and 6.7% estimates for 2018 and 2019, respectively, the International Monetary Fund’s (IMF) 6.5% and 6.7% for the same years, and 6.7% of the Organization for Economic Cooperation and Development for both years.

Moreover, AMRO said in a separate blog post that the ASEAN+3 area — consisting of the 10 ASEAN members plus China, Japan and South Korea — faces a “high likelihood” of “high impact” risk from further escalation of the US-China trade conflict.

But it also noted that the area “has done well and remains the fastest growing region in the world”, with “most economies… growing at close to or slightly above potential with subdued inflation.”

The Philippines, along major ASEAN economies such as Indonesia, Malaysia, Thailand, and Korea “continue to have relatively strong external positions with adequate reserves and current account balances that are either in surplus or in small deficit,” AMRO said.

The regional surveillance body said that countries should rain vigilant for potential downside risks.

“For economies facing strong external headwinds and spillovers, policy makers have preemptively tightened monetary policy to help assuage market concerns. On the fiscal front, prudent public finances have allowed fiscal policy to play a crucial countercyclical role, helping to support growth. However, with the narrowing fiscal space, authorities would need to reprioritize spending to support structural reforms and growth,” AMRO said.

“Policy makers should continue to remain vigilant, with no room for complacency. Longer term structural reform agenda should also be pushed ahead, such as in building capacity and connectivity to foster resilience and enhance future growth prospects,” it added.

For HSBC, Philippine GDP growth will ease slightly this year due to higher interest rates even as private consumption is seen to remain strong.

HSBC projects GDP growth to moderate to six percent this year from the 6.2% projected for 2018.

“We anticipate the economic growth in the Philippines to stay relatively resilient, in line with the synchronized global slowdown scenario,” HSBC Private Banking Chief Market Strategist in Asia Fan Cheuk Wan said in a press conference on Wednesday.

For this year, the private lending unit of the HSBC Group expects the BSP to “approach the end of its tightening cycle” by hiking its benchmark rates by 25 basis points in the first quarter.

“We still have the excise tax increase. This will continue to underpin inflation concerns at the beginning of the year,” Ms. Fan added. “But after a Q1 BSP rate hike, and with the impact of the oil price correction of last year… we will start to see easing inflationary pressures in the Philippines.”

HSBC projects local headline inflation clocking in at 3.8% for whole-year 2019, well within the BSP’s 2-4% target band.

It also expects the “Philippine Stock Exchange index to recover to 8,600 by the end of 2019 after the sharp correction last year.”


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