A fistful of pesos

On a wet and windy afternoon in Manila, business is brisk at a Metrobank branch that sits beneath the glass-and-steel curve of its headquarters building in Makati. Even with a squall outside and a financial tsunami offshore, customers are waiting patiently to take out loans for new cars and condos because, despite the crisis elsewhere, there is no credit crunch in the Philippines.

Indeed, credit is positively booming. Bank of the Philippine Islands grew its loan book by 17% in 2008 and expects as much as 10% growth this year. Businesses are benefiting from the liquidity too, especially as the cost of borrowing in the international markets has, in effect, closed that option for most of Asia's corporate borrowers. Onshore, there is roughly Ps200 billion ($4.15 billion) of liquidity in the overnight market and Ps400 billion in the central bank's special deposit account window, and local bankers say there is a queue of businesses that want to take advantage of it.

During the past few months, several big names already have. Globe Telecom raised Ps5 billion in February, Ayala raised Ps6 billion in November and several of the big banks have come to the market with similar sized deals. "There's clearly a lot of liquidity in the market," said Lynette Oritiz, head of debt capital markets at HSBC in Manila. "For a good issuer that prices well, the market will definitely support it."

Even so, the size of San Miguel Brewery's deal in March was a surprise. The company, which had never borrowed from the markets before, launched the biggest-ever peso bond by any company in the Philippines -- a Ps38.8 billion deal to buy a bunch of assets from its parent company, dwarfing the previous biggest deal: an Ps8 billion bond by Ayala.

San Miguel's management originally considered raising half of the money in US dollars, but bankers eventually convinced the beer-maker that it could raise the entire amount in pesos, which would make the funding considerably cheaper. According to Oritiz, borrowing five-year money offshore at around 8.5% would probably end up costing about 11% after swapping back into pesos, compared to the 8.875% San Miguel paid onshore. It was a landmark deal, supported by all of the largest players in the market: HSBC and the Development Bank of the Philippines led the deal, with Standard Chartered, ING, BDO Capital, First Metro Investment, BPI Capital, China Bank, Land Bank of the Philippines and Philippine Commercial Capital all acting as joint underwriters.

The bond offer was connected to the sale of the brewery to Japan's Kirin. In the past, San Miguel Brewery operated as little more than a bottling operation for its parent, but Kirin would prefer the business to stand on its own, which means buying the land and brands that it needs to operate as a separate business.

The liquidity available in the Philippines today can be partly explained by two phenomena. The domestic economy remains relatively unscathed by the problems elsewhere in the world and global investors are in retreat to their home markets, cashing out of overseas investments and transferring them to assets they are comfortable with. For Filipinos, there are few names more comforting than San Miguel.

Securitisation
As if to underscore the difference between the Philippines and most economies in Asia, the National Home Mortgage Finance Corp re-opened the securitisation market in March with a Ps2.1 billion deal backed by residential mortgages. The originator retained roughly 15% of the notes to provide support to the Ps1.75 billion senior tranche, which attracted Ps3.5 billion of orders from the three local banks that bought the deal, according to arranger Standard Chartered.

Perhaps the only issue weighing on the pipeline of bond deals is the amount of government issuance. Last year the treasury sucked up a lot of liquidity, including a huge Ps70 billion retail bond, and it is likely to come back to the market this year. Another borrower expected in the near term is Psalm, which manages the country's power sector assets and liabilities. "There will be some spread pressure as a result of all the issuance coming to the market," said Oritiz. But, she added, that pressure is unlikely to prevent good issuers coming to the market.

This story was first published in the April issue of FinanceAsia magazine.