STANDARD & Poor’s Ratings Services (S&P) reported on Tuesday that debts of Filipino companies expanded the fastest among their peers in Southeast Asia.
In its recent “Asean Top Companies” series study, the company estimated that total net debt at 17 conglomerates in the Philippines almost tripled from 2008 to the first quarter of this year.
According to S&P Director for Corporate Ratings in Asia Pacific Xavier Jean, additional debts were used by these big firms for their organic growth and acquisitions over the period while maintaining dividend payments.
The medium ratio of net debt to earnings before interest, taxes, depreciation and amortization (Ebitda) rose to around 3.5 times at the end of 2013, from 1.9 times at the end of 2008, since revenues and cash flows have not kept up with increasing debt.
This was the highest among the 10 member-states of the Asean, followed by Singapore at 3.3 times. Indonesia had the lowest median ratio at 1.0.
The report also showed that the expansion of revenues of the Filipino-owned companies reviewed remained sound compared to their Asean counterparts.
Nevertheless, median revenue growth nearly halved to about 8
percent last year as against the peak in 2010 at over 17 percent, due to tougher competition and greater capacity across industries.
Jean noted the pace of growth of debt in the Philippines has been “faster than the pace of earnings,” hence, the general credit profile of the conglomerates studied has been affected. As per the S&P’s study, the various sovereigns exhibited a wide variation in their financing strategies and financial-risk profiles.
Of the companies reviewed, 30 percent had big debt loads often because of debt-financed spending or mergers.
On the other hand, about a quarter had conservative balance sheets with moderate low debt levels.
Meanwhile, firms exhibited a huge variation in business risk profiles, wherein those of the conglomerates are mostly commensurate with an investment-grade level.
A number of companies also had narrower operations, more volatile margins, smaller sizes, or operations in more competitive industries that weighed down their profile in terms of business risk. By and large, Jean said conglomerates in the country have a broad access to debt markets to bankroll their expansion, as they do have more growth strategy choices on hand due to their wide array of operations. While previously it usually took two years for Asean companies to pay debts, S&P Managing Director and Analytical Manager for Corporate Ratings in Asia Pacific Michael Seewald said Filipino firms can now settle debts in three-and-a -half-years—the longest in the region as a whole.
Looking forward, S&P projects the country’s credit quality will further decline over the next 12 months.
Javier said they see “no sign of a slowdown” in terms of spending, as local companies continue to invest mostly for organic growth of their respective businesses.
Merger and acquisitions are also expected to rise in a year or two, as big and profitable investment opportunities in the domestic market become harder to find.
The Top 17 Filipino companies
surveyed included Aboitiz Power Corp., Alliance Global Group Inc., Ayala Corp., Ayala Land Inc., DMCI Holdings Inc., Globe Telecom Inc., International Container Terminal 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 Miguel Corp., SM Prime Holdings Inc. and Universal Robina Corp. Roderick L. Abad