The challenges and opportunities of listing bonds in the Phl

(First of two parts)

Several years ago, I got a request from a certain Bangko Sentral ng Pilipinas (BSP) Monetary Board member to visit me in my office and get an update on the state of the Philippine capital markets. This particular person was very unassuming and wanted to get our ideas on the size and challenges of the market. Years later, this very same person would go on and be appointed as the BSP Governor. What was so refreshing with my meeting with then-future governor Eli Remolona Jr. was that he was very open to new ideas and suggestions. Despite already having extensive international experience, his humility and desire to understand the nuances of our market were still very evident. Now that he heads our highest monetary institution, we recently had meetings with his people. Our discussions revolved on how to deepen the country’s capital markets, specifically on how to open the market to a bigger number of issuers.

The untapped Philippine bond market

While there are over 600,000 corporations registered with the Securities and Exchange Commission (SEC), only about 260 of these are listed on the Philippine Stock Exchange (PSE). Even more unfortunate is the number of companies whose bonds are currently listed on the Philippine Dealing and Exchange (PDex), which is just at around 50. Of these 50, about 90 percent are PSE-listed companies, while the remaining 10 percent are not.

Evidently, there is a large difference between the number of PSE-listed companies and the companies listed on the bond exchange, as only the usual names, particularly the large major conglomerates and their subsidiaries, come out and list on the local bond market every year. In fact, there are currently only about 200 listed bonds spread across the aforementioned 50 issuers. The repeated pattern cannot be faulted either, as the usual names have already demonstrated their abilities to meet their debt obligations time and time again, leading lenders and bond investors to associate trustworthiness, familiarity and name recall with these issuers.

In spite of the widespread influence of the usual names in the local bond market, the overwhelming demand of lenders and bond investors for oversubscribed fixed income issuances in the past years indicates that the local bond market is actually just scratching the surface and has more room to grow. Both the smaller PSE-listed names and even unlisted companies still have an opportunity to take a slice of the untapped war chest of the local bond market.

The great depth of the market’s appetite for bonds is best evidenced by the immense P346.4 billion average that corporate entities have raised from the Philippine bond market over the past five years. For comparison, the Philippine stock market came up with less than a third of corporate bond issuances over the same period of time at an average of just P102.3 Billion from initial public offerings, follow-on offerings, stock rights offerings, and preferred shares issuances. To illustrate further, BDO Unibank just recently conducted the country’s largest ever bond issuance at a massive P63.3 billion in January 2024 and San Miguel Corp. also recently conducted the country’s second largest ever bond issuance at a hefty P60 billion in December 2022. To compare, the country’s largest ever equity issuance at P48.6 billion was conducted by Monde Nissin in June 2021, and we hope there will be more equity issuances, especially when interest rates go down.

Understanding the costs and requirements

In order to hopefully expand the number of listings in PDex, we first need to understand the costs and requirements. An issue size of P3 billion is the general rule of thumb we see among recent issuers to make it worthwhile to tap the bond market. There are two phases to prepare for in listing bonds: Housekeeping and Preparation for the actual issue.

This was co-written by Eduardo Francisco and Andrew Poblete. Mr. Francisco is President of BDO Capital & Investment Corp. and Vice Chairperson of the Shareholders’ Association of the Philippines (SharePHIL). Mr. Poblete is an Associate in BDO Capital.

To learn more about SharePHIL, visit https://bit.ly/m/sharephil

(To be continued)