Biz Buzz: Big boys rule

The good news is that Bangko Sentral ng Pilipinas Governor Nestor Es

penilla Jr. is eager to restore the long prohibited “repo” (short for “repurchase”) market in the country which would allow banks to borrow short-term loans from each other using debt securities (usually government treasury bills or bonds) as collateral.

Though it sounds innocuous, this activity was banned by the central bank several years ago because banks tended to underreport the level of their liabilities—not disclosing that they were obligated to buy back certain securities at a future date at a pre-agreed price, in order to avoid setting aside costly reserves—and leading everyone—from regulators to stakeholders—to think that banks carried less liabilities than they actually had.

But thanks to tighter reporting requirements and the advent of technology that allows real time monitoring, the central bank has taken moves to restore what is an important tool in liquidity management. Basically, banks that have idle Tbills or bonds can lend them out anywhere from overnight to 30 days (sometimes longer), while those which have idle short term funds can “place” them out and receive debt securities as collateral. Once the transactions mature, the loan is repaid, plus interest, and the securities are returned.

So effective is the scheme for bank treasurers that Espenilla himself is eager to see it happen, partly because it means a more efficient banking system where both excess cash and idle securities are maximized.

And it will happen as soon as Nov. 17 —a little over three weeks away—barring unforeseen hiccups.

So what’s the problem? Well, it seems there’s more than just a hiccup in then scheme of things.

Biz Buzz has learned from sources that the banking system, which has long clamored for repos to be restored and legalized, may not be ready for it. That’s because the BSP wants all trading participants to have all the legal documentation among themselves before any single trade between banks is allowed. And rightly so.

The problem, we’ve heard, is that there are only “two or three banks” that have bilateral documentation (called GMRA or “global master repurchase agreement”) which is important for securing and protecting the rights of all parties involved in the deal.

And who has these bilateral GMRAs? “Only a few foreign banks have this among themselves,” our source said. “We’re worried that BSP will be embarrassed if they start it with the market unprepared.”

To be fair to BSP, our source said Espenilla himself was reassured that Philippine banks would be ready with the required documentation in three weeks when the repo market begins. And who gave him that reassurance? Who else, but the treasurer of a big foreign bank, much to the dismay of local banks who were hoping for a level playing field. Well, so much for that. —DAXIML. LUCAS

Boosting the war chest

The Zobels who control the country’s oldest business house, Ayala Corp., recently pared their stake in this storied conglomerate. Incidentally, this comes at a time when it’s widely believed that the group is hatching a big acquisition for one of its subsidiaries.

Mermac Inc. sold 7.06 million shares at P1,060 per share to a foreign institutional investor which will, however, still leave the Zobels as the controlling shareholder with 47.75 percent of common shares at 55.56 percent of voting shares. “This transaction is in step with Ayala’s efforts to increase its public float in view of strong demand for the company’s shares,” the group said.

The P7.5-billion deal for Mermac is still too small, however, compared to the prospective valuation of the company that many believe that the group is keen on acquiring. We hear that a “live” offer is on the table but we doubt whether either party will be ready to admit they are in discussions. People also agree that such acquisition makes sense for both prospective buyer and the seller. —DORIS DUMLAO-ABADILLA

Waiting in vain

Following a crackdown on unregistered ride sharing vehicles— culminating in Uber paying a P190-million fine to the Land Transportation Franchising and Regulatory Board—the issue has quieted down a bit.

Of course, ride sharing operators are hoping that despite early skirmishes with their regulator, the broader issue will be finally resolved.

We are, of course, talking about the still-standing halt on the processing of new driver applications in July last year. This poses a problem in a situation when demand is increasing but supply remains stagnant, or shall we say, curtailed.

In any case, in the midst of their row, the LTFRB had expressed its intention to issue guidelines on ride sharing by September. These rules would ultimately provide better clarity on the future of ride sharing in the Philippines.

Unfortunately, to date, those guidelines have yet to be released.

And while we don't expect the government to move swiftly on this matter (it has been dragging its feet all this time), the Christmas season is just around the corner. For those in Metro Manila, that means both a time of giving and horrific traffic jams.

Already, we’re hearing of ride sharing operators expecting a waiting time of at least 30 minutes, and never mind the surge riders will have to pay.

Hopefully relief is on the way. And when all else fails, there’s always our ever reliable cabs. —MIGUEL R. CAMUS

KYC for small stock investors

Companies embarking on an initial public offering via the Philippine Stock Exchange are required to earmark 10 percent of total offering size to local small in-

vestors (LSIs). And yet, only 2-3 percent of this allocation is actually taken up by the targeted beneficiaries. Why so? PSE president Ra

mon Monzon thinks it has something to do with the very tedious process and multiple know-your-customer (KYC) hurdles for a small investor to get that allotment. The investor has to go to any one of the PSE’s LSI five kiosks—in Libis, Ortigas, Binondo and Makati—show an ID, fill out an application form, bring the accomplished form to his/her stockbroker, have the broker acknowledge they are the broker, return to the kiosk, forward to the IPO underwriter, pay for the shares and wait for the shares.

“So you can see, this KYC process is being done three times. First, the customer already has a bank account so KYC had already been done by the bank. Secondly, the customer already has a broker account, that he goes to the broker for endorsement. The broker has done the KYC. Then the underwriter does another KYC,” Monzon said.

Knowing how cumbersome the current system is, Monzon said the PSE was trying to see how the process could be shortened without compromising KYC requirements.

At the same time, PSE wants to increase the maximum IPO allotment for local small investors by at least quadruple to P100,000 to make equities investing more worthwhile for retail investors.