The Philippines’ central bank will urge firms to reveal their external debt amid concerns about rising global rates of interest

The Philippines’ central bank plans to require the country’s largest business groups to reveal their external debt levels amid concerns that their exposure could also be greater than currently estimated.

According to Bangko Sentral ng Pilipinas Governor Felipe Medalli, the monetary authority goals to send the applications inside the following three to 6 months to avert potential risks to the Southeast Asian country’s economy.

“I don’t think we’re fully informed about the external exposure of our conglomerates,” Medalla said in an interview this week. “When we look at other data, for example, it appears that their exposure may be greater than we think. It’s about understanding the economy and staying vigilant.”

According to S&P Global Ratings, firms listed on the Philippine Stock Exchange are increasingly counting on low cost borrowed capital. However, there shall be pressure on firms to service or refinance this debt as a result of rising global rates of interest and the 4.6% weakening of the peso against the dollar over the past 12 months.

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The changing macro environment could also be considered one of the the explanation why the central bank is currently implementing the amended New Central Bank Act passed in February 2019, which provides it the appropriate to require local firms to reveal their debt exposure.

“We will be writing letters to important companies and asking if you could fill out this form. Will they tell us? I think so,” Medalla said.

Currently, prior central bank approval is required for private sector foreign loans only if they are backed by a government guarantee. Companies taking out loans without a state guarantee only need to notify the central bank and register if they plan to purchase foreign currency from the banking system to service the loan.

Medalla said some projects financed by foreign loans could lead to losses that weaken conglomerates and affect their banking operations.

“Our concern is that if conglomerates weaken, whether their investments are at home or abroad, it could impact the Philippine economy given their large size,” he said.

According to the information, essentially the most indebted Filipino company is food conglomerate San Miguel, which had total debt of 1.35 trillion pesos ($24.1 billion) at the top of March. The next most indebted are the conglomerates Ayala and SM Investments.

The data shows that the country’s 25 largest publicly traded firms, excluding financial firms, have a combined debt of no less than 100 billion pesos.

“Growth strategies remained ambitious even in the face of Covid shutdowns – and were often financed by cheap debt,” S&P credit analyst Xavier Jean in Singapore wrote last month.

San Miguel’s current debt level is the results of a strategic decision to undertake various projects, the corporate said in an announcement. “The company’s financial position remains healthy, enabling us to support our expansion and honor our commitments,” it said.

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Corporate debt within the Philippines, like in Malaysia and Hong Kong, is concentrated in firms with earnings-to-interest ratios of just above one, “which could potentially change into vulnerable to insolvency as borrowing costs rise,” International Monetary Commission Fund said in a report last month.

The current level of debt shouldn’t be a significant issue for everybody.

According to Vince Valdepenas, director of Bank of America Philippines in Manila, Filipino firms are generally strong, due to an economy that’s outpacing the economic growth of its neighbors, including Indonesia and Vietnam, so that they can comfortably deal with current debt levels.

“Their [higher] the extent of debt might be justified when it comes to their earnings,” he said. “As long as earnings remain strong, they may continue to support debt.”