Philippines receives S&P Investment Grade Rating; Beats queuing Indonesia

Standard and Poor Upgraded the Philippine Credit Rating to Investment Grade May 2, 2013

The Philippines overtook Indonesia to win an investment grade today from Standard & Poor's, as President Benigno Aquino outshines Susilo Bambang Yudhoyono in improving government finances and spurring growth.

The rating on the Philippines' long-term foreign-currency- denominated debt was raised one level to BBB- from BB+, with a stable outlook, S&P said in a statement today. In contrast, the assessor revised its outlook on Indonesia's BB+ rating to stable from positive.

"The upgrade on the Philippines reflects a strengthening external profile, moderating inflation, and the government's declining reliance on foreign currency debt," S&P said. "In our assessment, the stalling of the reform momentum in Indonesia and a weaker external profile have diminished the potential for an upgrade over the next 12 months," it said separately.

Aquino's drive to transform the nation into one of the region's fastest-growing economies is gaining strength, with the government forecasting record investment pledges this year as companies including Murata Manufacturing Co. expand. In Indonesia, President Yudhoyono has delayed cutting fuel subsidies that have drained government finances even as he tries to allocate more funds to infrastructure spending.

"For the Philippines, this is yet another confirmation that Aquino's reforms have borne fruit which would help in attracting not just short-term flows, but long term direct investments," said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. "The rating momentum for Indonesia is moving in the wrong direction."

Capital Inflows

The peso climbed to a three-week high of 41.055 per dollar, reversing earlier losses. It is the biggest gainer in the past 12 months after the Thai baht among 11 Asian currencies tracked by Bloomberg. The Philippine Stock Exchange Index (PCOMP) advanced 0.3 percent before the announcement after surging to a record in April. The Jakarta Composite Index fell 1 percent.

Higher ratings may boost capital inflows into the Philippines and prompt the central bank to add to measures to curb asset-bubble risks. Bangko Sentral ng Pilipinas last month cut the rate it pays on special deposit accounts for a third time this year, while keeping the rate it pays lenders for overnight deposits at a record-low 3.5 percent.

BSP will remain vigilant against risks associated with greater inflows, Governor Amando Tetangco said today.

Corruption Fight

Aquino has increased state spending and narrowed the budget deficit while seeking more than $17 billion of infrastructure investments to spur growth to as much as 7 percent this year. The Philippine economy, which was more than twice the size of Malaysia and 10 times bigger than Singapore's in 1960, expanded 6.8 percent in the fourth quarter.

Aquino has taken on the Catholic Church with a bill to provide free contraceptives to the poor, arrested his predecessor on graft charges, and ousted the country's top judge for illegally concealing his wealth. Transparency International raised the country's ranking on its annual corruption index last year to 105, higher than Indonesia at 118.

"The investment grade rating is another resounding vote of confidence," Finance Secretary Cesar Purisima said. "The government will continue to focus on infrastructure development, on creating a larger fiscal space to support social investments, and on further opening up the economy."

Fitch Ratings was the first to upgrade the Philippines to investment grade in March. Moody's Investors Service rates the nation one step below.

Ratings changes aren't always followed by investors. French bonds and U.S. Treasuries both made gains after the countries were stripped of their AAA credit ratings, in a signal that downgrades may have little bearing on borrowing costs.

Little Bearing

Almost half the time, government bond yields fall when an action suggests they should climb, or they increase even as a change signals a decline, according to 38 years of data compiled by Bloomberg.

Yudhoyono said this week he will only increase fuel prices after Parliament approves compensation programs for the poor, a move that could delay efforts to contain a budget deficit that may be more than twice as much as estimated without subsidy cuts. Failure to reduce subsidies last year drained government finances and led to a record current-account shortfall, hurting the rupiah as foreign investors lost confidence.

S&P said it may raise the country's rating if the fuel reforms are finalized, the state budget is improved, or if structural reforms boost economic growth. The assessment may be lowered if renewed fiscal or external pressures are not met with "timely and adequate policy responses," S&P said.

Bloomberg News

To contact the reporter on this story: Karl Lester M. Yap at kyap5@bloomberg.net To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Thai Univanich Palm Oil expands into Mindanao Philippines

Mill in Mindanao to be first of its kind in North Cotabato

Univanich Palm Oil, one of the country's leading palm-oil producers and its largest exporter of crude palm oil, is expanding into Asean with its first investment in the Philippines.

Univanich will build an oil-palm mill in Carmen, a town in North Cotabato, Mindanao. The US$10-million (Bt290-million) plant will be the first of its kind in the southern province.

"Through this investment, we are delighted, and excited, to bring our more than 40 years of palm-oil-producing expertise to a new, and very promising, Asean market," chairman Apirag Vanich said yesterday.

"Like many other Thai companies we are excited by the Asean opportunity and the approaching single market under the AEC that offers great growth prospects and business benefits," he said, referring to the Asean Economic Community that officially starts in 2015.

As oil palms are a relatively new crop in the southern Philippines, the mill will potentially open opportunities for thousands of farmers and their families in the region.

"Based on our research and dialogue with local partners, we are confident our oil-palm success story in southern Thailand - where we have helped many rural communities grow and prosper - will be replicated in the southern Philippines," he said.

Peace talks

Besides good growing conditions, peace and stability discussions between the Philippine government and insurgent leaders in Mindanao have made the region increasingly attractive for oil-palm investment.

Managing director John Clendon said oil palm was an ideal crop for small-farmer cultivation and the company was joining with Carmen Palm Oil Mill & Development Corp to build this factory. Univanich also hopes to create its own network of oil-palm plantations in the Mindanao region.

"We are very optimistic about our prospects in Mindanao, and since the designation of the factory site, many farmers have asked for more information about how they can convert their farms to grow oil palms," he said.

"To meet this demand, the Univanich Oil Palm Research Centre in Krabi has already exported more than a million high-yielding hybrid oil-palm seeds to Philippine growers in recent years."

The factory is scheduled to be completed by the second quarter of next year. Besides local engineering firms, engineers from Univanich Thailand will assist during the build.

When the mill is up and running, the initial processing target is 30 tonnes of fresh fruit bunches per hour. As the industry develops, this is expected to reach 60 tonnes per hour.

The bulk of the output will be shipped to Asean and European markets from the major southern ports of Davao or General Santos.

The Nation

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China – Philippines slamming Anew over Chinese devil tongue strayed in ASEAN Shores

China's devil tongue extending to the ASEAN shores

China slams Philippine bid to "legalize" occupation of islands

(Reuters) - China accused the Philippines on last week (April 26, 2013) of trying to legalize its occupation of islands in Kalayaan  in the disputed West Philippines Sea and South China Sea, repeating that Beijing would never agree to international arbitration.

Frustrated with the slow pace of regional diplomacy, the Philippines in January angered China by asking a U.N. tribunal to order a halt to Beijing's activities that it said violated Philippine sovereignty over the islands, surrounded by potentially energy-rich waters 200 Nautical Miles Exclusive Economic Zone granted by UNCLOS..

Claims by an increasingly powerful China over most of the West Philippines Sea and South China Sea have set it directly against U.S. allies Vietnam and the Philippines. Brunei, Taiwan and Malaysia also claim parts of the waters and China has a separate dispute with Japan in the East China Sea.

Manila said on Thursday that a U.N. arbitration court had set up the tribunal which would hear Manila's complaint, but China said this was an attempt to steal Chinese territory.

"The Philippine side is trying to use this to negate China's territorial sovereignty and attach a veneer of 'legality' to its illegal occupation of Chinese islands and reefs," the Foreign Ministry said in a statement on its website (www.mfa.gov.cn).

The Philippines must immediately withdraw personnel and facilities from the islands, the ministry added, listing those which it said Manila was occupying.

Manila asked the tribunal of the U.N. Convention on the Law of the Sea (UNCLOS) to order a halt to China's activities.

But the convention did not apply in this case as what the Philippines was actually asking for was a decision on sovereignty, the Chinese ministry said.

"China's refusal to accept the Philippines' request for arbitration has full grounding in international law," it said.

China had always believed that the two countries should resolve their dispute through direct talks, the ministry added.

The worry of the Philippines is china's inability to honor its word for bilateral talks as proven anew when both agreed to de-escalate the stand-off in Scarborough Shoal.

China and the Philippines agreed to remove their ships in the island which is within 200 Nautical Miles Exclusive Economic Zone of the Philippines to end the standoff but after Philippine Ship removal, china did not leave the island and in fact block all the passage of the Philippines and ram with Filipino fishermen killing 1.

The Philippines lost its confidence and trust to china anew after the incidents. The Scarborough Shoal now is virtually controlled by China with thousand of kilometers from its closest shore and around 2 hundred Kilometers from Luzon Island' biggest island in the Philippines.

Southeast Asian nations stepped up efforts on Thursday to engage China in talks to resolve maritime tensions, agreeing to meet to try to reach common ground on disputed waters ahead of planned discussions in Beijing later this year.

Efforts by the Association of Southeast Asian Nations (ASEAN) to craft a code of conduct to manage South China Sea tensions all but collapsed last year at a summit chaired by Cambodia, a close economic ally of China, when the group failed to issue a closing statement for the first time. (Reporting by Ben Blanchard; Editing by Nick Macfie)

Philippine Navy chief slams Chinese maneuvers in disputed sea

Philippine Navy chief Vice Admiral Jose Luis Alano said Chinese naval maneuvers in the West Philippine Sea (South China Sea) and use of non-military maritime vessels way beyond its coastlines to advance sovereignty claims to most of the sea were both "aggressive and excessive."

Alano, who was appointed Flag Officer in Command of the Philippine Navy last December, met with Admiral Jonathan Greenert, chief of US Naval Operations, at the Pentagon on Thursday to discuss the security situation in the South China Sea and navy-to-navy issues.

News reports from China said the PLA Navy dispatched a large contingent of ships to circumnavigate the West Philippine Sea and South China Sea last month, a maneuver likened to marking Chinese territory.

Beijing's claim to the West Philippine Sea and South China Sea is based on its so-called nine-dash map which shows a U-shaped area encompassing most of the sea, including territories claimed by the Philippines, Vietnam, Brunei, Malaysia and Taiwan which other known as "Devil's tongue strayed in the ASEAN Shore)

Alano will travel on Friday to North Charleston, South Carolina to inspect the second of two Coast Guard cutters that the Philippines has acquired from the US.

The 378-foot Hamilton-class vessel Dallas, rechristened BRP Ramon Alcaraz, is in the final stages of refurbishing and refitting and will soon join the BRP Gregorio del Pilar, the first US Coast Guard cutter acquired by Manila in 2011 for duty in the West Philippine Sea.

Alcaraz was officially handed over to the Philippines in May 2012 and should have been operating in Philippine waters by now.

But unexpected technical problems and upgrades on the ship have caused some delays and Alano said he expected the Alcaraz to set sail for the Philippines around the third week of June.

He said Alcaraz has been fitted with two new secondary guns – fully automated Mk 38 25mm bushmaster cannons – and a modern radar system. The Gregorio del Pilar will be fitted with similar new cannons.

A complement of 88 Filipino officers and crew under the command of Capt. Ernesto Baldovino have been living aboard the Alcaraz while it has been undergoing repairs to familiarize themselves with all the technical, mechanical and computerized aspects of the ship.

They will be joined by a six-member technical working group including training evaluation experts scheduled to arrive from Manila next month to give the vessel and crew the final go ahead to cross the Pacific to its new home in the Philippines.

In an interview with The STAR on his arrival in Washington on Wednesday, Alano said the prestige of the Philippine Navy was on the rise because of the acquisition of new firepower and the due recognition it was receiving from the government and the public.

Morale was high, more graduates of the Philippine Military Academy were opting for naval careers and the service was attracting more interest from recruits with technical and computer skills, he said.  

The Philippines last year expressed an interest in acquiring a third Hamilton class Coast Guard ship but is not now actively pursuing it.

Alano said given the current exigencies to create a credible maritime defense force, interest has shifted to purchasing new vessels and helicopters to extend the range of these vessels.

He said the Philippines was looking at proposals from several countries for two new 2,000-ton frigates with full surface and anti-air and anti-submarine capabilities.

It was also interested in acquiring strategic sealift vessels to give the Navy the capability to transport heavy cargo and large numbers of troops.

The Philippines was also in negotiations for the acquisition of three AW109 lightweight helicopters built by the Anglo-Italian manufacturer AgustaWestland which can be used for medevac (medical evacuation), search-and-rescue and military roles.

"We should receive them by next year," Alano said.

Additionally, he said the Navy has received six Philippine-made multi-purpose attack craft and more are being programmed for acquisition.

With reports from Reuters and philSTAR

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