Ayala Corp is an exceptionally powerful group within the Philippines, combining leading national businesses in real estate (Ayala Land), financial services (Bank of the Philippine Islands), telecommunications (Globe Telecom), utilities (Manila Water Company, among others), and various BPO, IT and automotive arms.
For Chito Gonzales, CFO of the holding company for all these businesses, the emergence of local liquidity, and hence local banks, has been a key theme.
“If we wanted to raise peso bonds and go to the local capital markets three to five years ago, the international banks would have a bit of an edge because they would be able to put things together. But in the last few years, so long as it’s a peso loan or bond, the international banks no longer have an advantage over the locals.”
Partly that’s because of international banks pulling back their own liquidity, he says, but also it’s about the market itself. “A lot of the peso liquidity that has grown over the last three years has basically gone to the local banks rather than the international banks.”
The emergence of peso liquidity really caught the eye of investors when San Miguel Brewery raised P38.8 billion in a debut deal in March 2009, breaking the local current debt issuance record in pesos by a multiple of four in the middle of the global financial crisis.
And Ayala has since found new frontiers in the currency, raising P10 billion in 15-year funds – the longest ever maturity in the Philippines – last year and paying just 120 basis points over government bonds to do so.
It’s interesting to look at the bank selections on that deal as an illustration of who has benefited most from this growing local liquidity. Eight bookrunners were used, mixing five locals (BPI Capital, BDO Capital, First Metro Investment Corp, RCBC, SB Capital) with three internationals (HSBC, ING and Standard Chartered).
“That was a benchmark deal, so we wanted to make sure we had the banks that could support it. But the international banks were ones that were already operating here, with good access to either high-net-worth individuals or local corporations and were able to add value to the process.”
Other deals have varied in their selection of bookrunners; a P6.45 billion block trade in July was sole led by Deutsche Bank “because they clearly had one of the strongest market shares in Philippine trades”, while Ayala Land raised P13.6 billion in a primary share sale the same month, with a mixture of local and international names.
Gonzales says he typically sends out an RFP and then takes into consideration “who can give us the best deal at any point in time”, bearing in mind existing relationships but generally concluding that “we would have to go with whoever gives us the best pricing. We need to work with banks with a fairly large balance sheet, but additionally are looking for banks that are innovative, creative and can offer us new solutions.”
Outside of the capital markets, the group is also open to new ideas on more mainstream transactional needs. It used JP Morgan to implement a new cash solution at Globe Telecom, for example.
If anything, Ayala suffers through its sheer scale. “The banks are limited to single borrower limits, and we have to make sure there is room for the rest of the group to borrow. Sometimes other members of our group are sharing the same statutory limit that’s imposed on the banks.”
Among internationals, Gonzales notes that “it’s only been in the last couple of years that many international banks have been able to get out of the problems they’ve faced globally” and finds that, in the meantime, Japanese banks have stepped up. “Before the crisis, European and American banks would clearly be our natural partners when it comes to dollar borrowing.”
