Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Metropolitan Bank & Trust / Equity Bottom-Up

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<p>On the <a href="https://www.phcc.gov.ph/press-releases/banks-mca-moa/" target="_blank" rel="noopener">5 November</a>, Bangko Sentral ng Pilipinas (BSP - the central bank of the Philippines), the Securities and Exchange Commission, Philippine Competition Commission (PCC), Philippine Deposit Insurance Corp, and the Cooperative Development Authority signed a multi-agency agreement to streamline the merger, consolidation, and acquisition (MCA) process to encourage consolidation in the banking sector.</p>
<p>BSP Governor Benjamin Diokno said the agreement "<em>aims to streamline processes, reduce processing time, and facilitate prompt action of applications for mergers, consolidations, and acquisitions</em>". PCC's Arsenio Balisacan added: "<em>We acknowledge that mergers, consolidations, and acquisitions can catalyse innovation in any industry, including banking, because of combined resources and expertise". </em></p>
<p>The agreement, in effect, harmonizes the paperwork across the various regulators, by reducing the number of documentary requirements to 30 from 58, which in turn lowers the total processing time to an expected 55 business days from an average of 160 business days currently.</p>
<p>According to the <a href="https://www.phcc.gov.ph/press-releases/banks-mca-moa/" target="_blank" rel="noopener">PCC</a>, the "<em>Implementing Guidelines on the procedures for MCA applications will subsequently be issued via a Joint Circular by the partner-agencies</em>".</p>
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<div id="gpt-ad-Instream_Video">For years, the various regulators have aimed to consolidate the Philippines' highly fragmented banking sector comprising mostly small rural lenders. Such inefficiencies have led to nine problematic banks being shut this year, including BSP's recent order to close United People’s Rural Bank Inc.</div>
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<div>The accord was also promulgated after the BSP stopped accepting digital banking license applications from 1 September 2021, with the number of digital lenders expected to be capped at seven for the next three years.</div>
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<div>The question is: who stands to benefit from this MCA streamlining?</div>
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<div><em>For more on M&amp;A in the Philippines, please see the <a href="https://www.smartkarma.com/insights/quiddity-philippines-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:31122" rel="noopener">Quiddity Philippines M&amp;A Guide 2019</a>. </em></div>
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On the 5 November, Bangko Sentral ng Pilipinas (BSP - the central bank of the Philippines), the Securities and Exchange Commission, Philippine Competition Commission (PCC), Philippine Deposit Insurance Corp, and the Cooperative Development Authority signed a multi-agency agreement to streamline the merger, consolidation, and acquisition (MCA) process to encourage consolidation in the banking sector.
BSP Governor Benjamin Diokno said the agreement "aims to streamline processes, reduce processing time, and facilitate prompt action of applications for mergers, consolidations, and acquisitions". PCC's Arsenio Balisacan added: "We acknowledge that mergers, consolidations, and acquisitions can catalyse innovation in any industry, including banking, because of combined resources and expertise". 
The agreement, in effect, harmonizes the paperwork across the various regulators, by reducing the number of documentary requirements to 30 from 58, which in turn lowers the total processing time to an expected 55 business days from an average of 160 business days currently.
According to the PCC, the "Implementing Guidelines on the procedures for MCA applications will subsequently be issued via a Joint Circular by the partner-agencies".

For years, the various regulators have aimed to consolidate the Philippines' highly fragmented banking sector comprising mostly small rural lenders. Such inefficiencies have led to nine problematic banks being shut this year, including BSP's recent order to close United People’s Rural Bank Inc.

The accord was also promulgated after the BSP stopped accepting digital banking license applications from 1 September 2021, with the number of digital lenders expected to be capped at seven for the next three years.


The question is: who stands to benefit from this MCA streamlining?




For more on M&amp;A in the Philippines, please see the Quiddity Philippines M&amp;A Guide 2019. 





Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Bank of the Philippine Islands / Equity Bottom-Up

<p><strong><em>*</em></strong><strong><em>Credit Leverage On Its Way: </em></strong>Bank of the Philippine Islands (BPI.PM) [BPI] reported 3Q21 results of PHP 5.7 bn, declining PHP 1.1 bn (16.6%) linked quarter. While results were down linked quarter, what impressed us most was how well controlled credit metrics appear to be; and</p><p><strong><em>*Significant Credit Improvement: </em></strong>Our net new NPL figure of PHP 152 mn or 1.5% annualized (65.4% at 4Q20) intimate that management may actually be on to something. Given where BPI and the Philippines are with credit, it would not surprise us in the least if BPI reverses loss reserves.</p>

*Credit Leverage On Its Way: Bank of the Philippine Islands (BPI.PM) [BPI] reported 3Q21 results of PHP 5.7 bn, declining PHP 1.1 bn (16.6%) linked quarter. While results were down linked quarter, what impressed us most was how well controlled credit metrics appear to be; and*Significant Credit Improvement: Our net new NPL figure of PHP 152 mn or 1.5% annualized (65.4% at 4Q20) intimate that management may actually be on to something. Given where BPI and the Philippines are with credit, it would not surprise us in the least if BPI reverses loss reserves.

Bank Of Philippine Islands – Asia’s Top Performer

Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

<h2>Singapore</h2><h3><a href="https://www.smartkarma.com/entities/suntec-reit" target="_blank" data-smartkarma-citation="entities:151" rel="noopener">Suntec REIT (SUN SP)</a> to divest office strata units for S$197m; Acquire London building for GBP353m (S$667.2m)</h3><ul><li>SUN is divesting a portfolio of strata units at Suntec City Office for S$197m and acquiring a Grade-A office building located in the heart of city of London for GBP353m (S$667.2m). The Suntec City Office units are being divested at an 8.9% premium over the independent valuation of S$180.9m for the 78,491sqft of space, with a net gain on divestment of S$13.9m. The net property income yield was 3.1%</li><li>The London property is the Minster Building, an 11-storey Grade-A office development with ancillary retail built in 1990 and refurbished in 2018. It has a NPI yield of 4.5% (based on passing income as at 31Mar21 divided by the total acquisition outlay) and a long WALE of 12.3 years. The building has a committed occupancy of 96.7% with the office component being 96.2% leased to quality office tenants from diversified sectors, and WALE of 11.3 years. The retail component has a committed occupancy of 100% and a WALE of 19.6 years. The property has a two-year income guarantee for vacant spaces and retail leases, and an approximately one-year income guarantee for the co-working lease</li><li>Post these transactions, AUM will grow from S$11.5bn to S$11.7bn across 10 properties in Singapore (70.7% of AUM), Australia (16.8% of AUM) and the United Kingdom (12.5% of AUM). SUN continues to be anchored by office sector, which will contribute more than 85% of total income. The office portfolio WALE will be lengthened to 5.55 years, while the retail portfolio WALE will be extended to 3.18 years</li><li>On a FY20 pro-forma basis, after considering the proceeds from divestments of ~S$280.0m (9 Penang Road and SC Office strata units), GBP175.0m (~S$330.8m) of GBP-denominated loan at an indicative interest rate of 2.7% pa, and ~ S$70.0m perpetual securities at fixed rate coupon of 4.25% pa, this transaction is expected to be +3.6% DPU accretive and +0.7% NAV accretive to unitholders. Gearing will decrease to 43.8% from 44.3% as at 31Dec20 on a pro-forma basis. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/078/original/image003+%282%29.png?1625017360" class="editor-image img-responsive" data-smartkarma-image-id="216078"></figure><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/081/original/image004.png?1625017400" class="editor-image img-responsive" data-smartkarma-image-id="216081"></figure></section></section></li></ul>

SingaporeSuntec REIT (SUN SP) to divest office strata units for S$197m; Acquire London building for GBP353m (S$667.2m)SUN is divesting a portfolio of strata units at Suntec City Office for S$197m and acquiring a Grade-A office building located in the heart of city of London for GBP353m (S$667.2m). The Suntec City Office units are being divested at an 8.9% premium over the independent valuation of S$180.9m for the 78,491sqft of space, with a net gain on divestment of S$13.9m. The net property income yield was 3.1%The London property is the Minster Building, an 11-storey Grade-A office development with ancillary retail built in 1990 and refurbished in 2018. It has a NPI yield of 4.5% (based on passing income as at 31Mar21 divided by the total acquisition outlay) and a long WALE of 12.3 years. The building has a committed occupancy of 96.7% with the office component being 96.2% leased to quality office tenants from diversified sectors, and WALE of 11.3 years. The retail component has a committed occupancy of 100% and a WALE of 19.6 years. The property has a two-year income guarantee for vacant spaces and retail leases, and an approximately one-year income guarantee for the co-working leasePost these transactions, AUM will grow from S$11.5bn to S$11.7bn across 10 properties in Singapore (70.7% of AUM), Australia (16.8% of AUM) and the United Kingdom (12.5% of AUM). SUN continues to be anchored by office sector, which will contribute more than 85% of total income. The office portfolio WALE will be lengthened to 5.55 years, while the retail portfolio WALE will be extended to 3.18 yearsOn a FY20 pro-forma basis, after considering the proceeds from divestments of ~S$280.0m (9 Penang Road and SC Office strata units), GBP175.0m (~S$330.8m) of GBP-denominated loan at an indicative interest rate of 2.7% pa, and ~ S$70.0m perpetual securities at fixed rate coupon of 4.25% pa, this transaction is expected to be +3.6% DPU accretive and +0.7% NAV accretive to unitholders. Gearing will decrease to 43.8% from 44.3% as at 31Dec20 on a pro-forma basis. 

ASEAN Builder's Scoop (30Jun21) - SUN Busy Year with +3.6% DPU Accretion Deals

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p><strong>Executive Sum</strong><strong>mary:</strong>  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.</p><p>Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. </p><p>As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.</p><p>Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.</p>

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

<p><strong>Executive Summary:</strong> Momentum behind the recent Treasury market rally may be starting to slow. Greater conviction is likely to build over the weeks which follow as economic data is published, rather than result from this week’s FOMC meeting.</p><p>It is unlikely that the Fed will signal that it is ready to start tapering its asset purchase program this week. We are yet to see the whites of wage-growth eyes. Meanwhile, Canada became the first major economy to signal an exit from asset purchases. Canada’s central bank also indicated that a rate rise is now expected in the second half of 2022. Global interest rates did not react.  However, we may be tricked into seeing things which not there as upcoming wage data may point to rapidly falling wages.</p><p>As such, the narrative remains left to be taken in the fixed income markets.  We may have reached a peak in short positioning unwinding and the re-entry of Japanese investors in the market is also taken as a given. Unexpectedly good economic data over the next few weeks could be bad for Treasury yields.  This could re-ignite the reflation and carry-trade rallies.</p><p>While Treasuries continue to tread water, spreads on US CCC rated notes continued to trade at levels not seen since prior to the Global Financial Crisis in 2007. Investors are becoming concerned that the stretch for yield may be overdone. Excess US spread compression could benefit Asia HY as investors move offshore to grab better yields and excess spreads.</p><p>In the bank credit markets, Asia-headquartered institution performed across the credit continuum while European bank bond remained stuck with carry-trade unwind performance. The combination of spread tightening and Treasury bond curve flattening generated positive total returns amongst Asia banks.</p><p>We will hit the peak in bank earnings reports in the upcoming week. US banks set a high bar for performance by generating stellar investment banking and progressively improving core banking results over the last two weeks. They then signaled that they anticipate significantly higher interest rates later this year by raising record breaking amounts in the debt capital markets. Other banks may follow with material debt issuance over the next few weeks after reporting earnings this week.  </p><p>We explore these market themes within.</p><p><strong>Market Outlook</strong>: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  </p>

Executive Summary: Momentum behind the recent Treasury market rally may be starting to slow. Greater conviction is likely to build over the weeks which follow as economic data is published, rather than result from this week’s FOMC meeting.It is unlikely that the Fed will signal that it is ready to start tapering its asset purchase program this week. We are yet to see the whites of wage-growth eyes. Meanwhile, Canada became the first major economy to signal an exit from asset purchases. Canada’s central bank also indicated that a rate rise is now expected in the second half of 2022. Global interest rates did not react.  However, we may be tricked into seeing things which not there as upcoming wage data may point to rapidly falling wages.As such, the narrative remains left to be taken in the fixed income markets.  We may have reached a peak in short positioning unwinding and the re-entry of Japanese investors in the market is also taken as a given. Unexpectedly good economic data over the next few weeks could be bad for Treasury yields.  This could re-ignite the reflation and carry-trade rallies.While Treasuries continue to tread water, spreads on US CCC rated notes continued to trade at levels not seen since prior to the Global Financial Crisis in 2007. Investors are becoming concerned that the stretch for yield may be overdone. Excess US spread compression could benefit Asia HY as investors move offshore to grab better yields and excess spreads.In the bank credit markets, Asia-headquartered institution performed across the credit continuum while European bank bond remained stuck with carry-trade unwind performance. The combination of spread tightening and Treasury bond curve flattening generated positive total returns amongst Asia banks.We will hit the peak in bank earnings reports in the upcoming week. US banks set a high bar for performance by generating stellar investment banking and progressively improving core banking results over the last two weeks. They then signaled that they anticipate significantly higher interest rates later this year by raising record breaking amounts in the debt capital markets. Other banks may follow with material debt issuance over the next few weeks after reporting earnings this week.  We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Momentum Slows as Conviction Is Lacking

Philippines

Philippine National Bank, through its subsidiaries, provides commercial bank services. Its products include deposit-taking, lending, bill discounting, foreign exchange dealing, investment banking, and fund transfer. The Company also offers merchant banking, remittance servicing, non-life insurance, leasing, stock brokerage, foreign exchange trading, and related services.

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Philippine National Bank (PNB PM)

Philippine Banks: Streamlining M&A

MBT PM's given its conservative approach during Covid has improved its overall asset quality, plus it has the highest NPL coverage among the top...

David Blennerhassett

Bank Of Philippine Islands – Asia’s Top Performer

BANK OF PHILIPPINE ISLANDS: BPI reported QOQ 3Q21 results declined 16.6%. What impressed us most was how well controlled credit metrics are. It...

Thomas J. Monaco

ASEAN Builder's Scoop (30Jun21) - SUN Busy Year with +3.6% DPU Accretion Deals

SUN busy year with +3.6% DPU accretion deals; QC exemptions rule refined; The Working Capitol debt restructuring; Manila 1Q21 office demand muted;...

SCCM Asia Research

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Asia’s Tier 2 notes slightly outperformed AT1 in May. Shorter-duration bonds outperformed although there was greater differentiation in longer...

Hank Calenti, CFA

Bank Credit Weekly: Momentum Slows as Conviction Is Lacking

Momentum behind the Treasury market started to slow. Greater conviction is likely to build over the weeks which follow as economic data is...

Hank Calenti, CFA

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