BSP eases SBL rules for project contractors
THE CENTRAL BANK has eased lending ceilings imposed on banks in order to accommodate financing for big-ticket infrastructure projects.
In a statement, the Bangko Sentral ng Pilipinas ( BSP) said it will allow firms implementing major infrastructure projects to have a separate single borrower’s limit (SBL) as they secure funding from banks and quasi-banks.
The SBL is intended to limit the credit exposure to a single client to a maximum of 25% of a bank’s net worth. This is to minimize risks for the bank in the case of default, as relying too heavily on one borrower could damage the bank’s performance and bottom line.
The ceiling — which has been in place since 2004 — includes loans, as well as securities underwritten by universal banks and investment houses unsold after 90 days.
The central bank previously provided a separate 25% credit limit for public-private partnership (PPP) projects from 2010 to 2016. The PPP was the preferred mode of the former Aquino administration in pushing infrastructure development.
The new rules will soon allow project contractors — which the BSP called special purpose entities (SPEs) — to have a separate 25% exposure cap from lenders. This effectively gives them a bigger loan line to tap, as it would be treated separately from credit secured by their parent firms.
The central bank recognized that SPEs may be treated as independent units despite being owned by conglomerates, saying that these firms are “ring-fenced” by appropriate legal structures and operational controls that set their assets and cash flows apart from shareholders and related parties.
SPEs are usually composed of several conglomerates forming a consortium as they bag big-ticket construction contracts from the government.
Among the popular consortiums include the Megawide Construction Corp. and GMR Infrastructure Ltd. which is building a new terminal for the Clark International Airport, as well as the “super-consortium” proposing to rehabilitate the Ninoy Aquino International Airport which include Ayala Corp., Aboitiz Equity Ventures, Inc., Alliance Global Group, Inc., Asia Emerging Dragon, Filinvest Development Corp., JG Summit Holdings Inc. and Metro Pacific Investments Corp.
The central bank said the move is “in support of the government’s Build, Build, Build initiative,” referring to the plan of the Duterte administration to spend as much as P8 trillion from 2016 to 2022 on high- impact infrastructure projects nationwide.
The Duterte administration veered away from the PPP model in favor of a “hybrid” mode where the government takes on the construction. Several projects in the pipeline — which include railways, airports, and toll roads — are eyed to be transferred to the private sector for operations and maintenance, to improve efficiency.
Still, banks are expected to maintain sound practices despite the relaxed rules.
“Lending to such dedicated SPEs shall be subject to certain conditions to ensure effective risk monitoring and management. It is also required that purposes of project finance loans be in line with the government’s priority programs and projects,” the central bank added, pointing out that loan applications need to be prudently assessed by checking an SPE’s assets, revenues and project documents.
The central bank also reminded banks to be mindful of their project finance exposures and check the concentration of their loan portfolios in order to curb “excessive” credit risk-taking.
Sought for comment, Budget Secretary Benjamin E. Diokno said the BSP’s new rules will have a “positive” impact on the state’s infrastructure push: “The facility will be especially useful for construction firms who will bid for construction of projects and those who will bid for the operations and maintenance of an existing or new projects.”
“I know that the 25% rule has been a binding constraint for private construction,” Mr. Diokno said via text.
Economic managers said aggressive public spending will be supported by a mix of government debt, foreign grants, and additional revenues expected from up to five packages of the comprehensive tax reform program.
The massive infrastructure spending agenda is seen to propel economic growth to average 7-8% by 2022, while plugging connectivity and logistics woes in order to improve the ease of doing business in the Philippines.