Cezar Consing, president and chief executive of Bank of the Philippine Islands (BPI), aims to help the group become a relevant player in equities and M&A. “With more long-term capital formation taking place, we need to pay more attention to M&A and equity capital markets,” he says in an interview with FinanceAsia.
Consing, who joined the bank at the start of the year and is known by his nickname Bong, expects more companies to go public. Most listed conglomerates are controlled outright by families, posing liquidity challenges for investors, but he thinks some will allow a greater free float.
Although he is bullish on the Philippines maintaining high rates of economic growth, he identifies two weaknesses: illiquid equity capital markets and persistent unemployment.
“It's important we improve liquidity,” he says, but he believes economic growth will enable this. Until recently there was no incentive for elite families to reduce their majority stakes in listed companies. “But if we continue to enjoy 6% compound annual GDP growth, companies’ capital requirements will be bigger.”
He says investment bankers are spending a lot of time speaking with corporate owners about how they can maintain de facto control without necessarily owning the majority of shares.
“The Philippines has shed the ‘sick man of Asia’ tag,” Consing said last week at a treasury and CFO conference in Manila, organised by FinanceAsia and The Corporate Treasurer.
This is a new development. A year ago the Philippines seemed to be left behind by Chinese growth; for example, foreign direct investment flowed to Asian economies with more direct ties to China.
Since then, the Philippines has been promoted to investment grade status by Standard & Poor’s and Fitch (but not yet by Moody’s Investor Service), while its ability to stand on its own independently of China is now seen as a strength.
The country also enjoys a rising trade surplus while Malaysia, Thailand and Indonesia face deteriorating trade deficits. The peso has been more stable in the face of the recent emerging-market sell-off, and spreads on Philippine credit default swaps have narrowed as other Asian countries are experiencing widening CDS spreads.
Consing argues the question is whether the Philippines’ internal strengths will be enough to ride out the coming tightening of global liquidity once the US Federal Reserve begins to reduce or end its quantitative easing program.
“Do we have enough of a story here to outweigh the loss of global liquidity? I think we do,” he says.
Per capita income is about $2,500, which is low compared to countries with similar credit ratings. A sustained run in economic development should be able to lift incomes considerably.
And the fiscal situation continues to improve, with the federal budget deficit only 40% of GDP, much lower than many other Asian countries.
“If we enjoy a few more years of strong economic growth, a much larger portion of the population will become credit worthy,” Consing says. “That’s good for companies and that’s good for banks.”
Much of this is based on basic good governance, thanks to the Benigno ‘Noynoy’ Aquino administration. “Good governance allows people to make long-term decisions with capital,” Consing says.
But Aquino is already half way through his six-year term, and the constitution prohibits him from running for re-election. So the moral guidance he has brought to the job is not necessarily repeatable, although Consing is optimistic that elite families benefit more from a growing pie than squabbling over a stagnant one, and will back market-friendly politicians.
The other hurdle is unemployment. In most development cases, agricultural workers move to cities and become unskilled manufacturing workers, and from there scramble up the economic ladder. But the past decade or so has seen most Philippine manufacturing hollowed out by China. The collapse of domestic manufacturing stymies social mobility, which in turn endangers the country’s growth story.
But for now, Consing is looking to boost BPI’s equity and M&A capability. First, Metro Bank and BDO Unibank, the other top lenders in the country, are also equity and M&A players, and Consing is candid about BPI’s need to catch up. “We have a lot of respect for those two operations, but give us time,” Consing says.
He is growing the bank’s capital-markets and advisory capabilities by hiring Filipinos with overseas experience – people like himself. He joined the bank this year after serving as a partner at The Rohatyn Group, a New York-based hedge fund. He was also president of JP Morgan Securities Asia Pacific from 1999 to 2004. He got his start at BPI in the early 1980s.
“It’s a good time for Filipinos to come home,” he says.
