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Expert says more developed PHL peso bond market could attract infra investment

Posted on July 24, 2015

ILOILO CITY, Iloilo, July 24 (PNA) — The Philippines must develop its local currency bond market to attract foreign investors to the country’s infrastructure sector, an expert said.

Aside from using the available technical assistance that multilateral agencies offer, as well as the participation of local governments, the Philippines must have a more developed peso bond market, Coordinator of the Asia-Pacific Infrastructure Partnership and Asia Pacific Financial Forum, Julius Caesar Parrenas, said Thursday.

“The other thing is the need to develop the local bond market because in infrastructure, the revenues are in local currency,” said the senior advisor to Nomura Securities.

“So for foreign companies, it is very difficult for them to invest in foreign currency because of the currency risks.”

He said if the Philippines has a local currency bond market, foreign companies could actually raise the financing in the country and invest in infrastructure.

“They bring in their money and then make some arrangements, for example, swaps and then the amount that can be raised can be invested in infrastructure. So there’s no currency mismatch,” he explained.

The problem is some technical details still need to be addressed to make the Philippine peso bond market more helpful to investors, he said.

One of the issues mentioned by Parreñas is the liquidity of the bond market. Liquidity means the presence of active players and cash in the market at a particular time.

“Because there are many buyers and sellers in the market, whenever you want to sell a bond, somebody can buy it and when you want to buy a bond, somebody is there to sell it,” he said.

“But the thing is there are not enough sellers and buyers in the market.”

The Philippines thus needs more diverse investors, issuers, and the kind of financial instruments that would allow investors to hedge the risks. For instance, the repo and derivatives markets have to be developed.

“There are technical issues that make it difficult to develop and that is actually what we need to address,” he said, adding that the good thing is that initiatives are already underway.

Citing an example, Parreñas said the Asian Development Bank and the International Securities and Derivatives Association Inc. are advising and bringing together the players to develop the market.

The Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), Philippine Dealing and Exchange Corp. (PDEx) and all other players need to agree to the necessary legal reforms so the repo and derivatives markets would work, he said. (PNA)

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