S&P Global sees silver lining from Maharlika Fund

S&P Global sees silver lining from Maharlika Fund | Daily Tribune

Credit analyst S&P Global Ratings sees potential economic growth in the Philippines from the Maharlika Investment Fund despite its non-traditional capital sources.

“I think foreign investors will look for projects that are generally positive, and some of these projects in the short term may not look economically viable, but in the long term they can provide economic benefits,” YeeFam Phua, S&P director for sovereign and international public finance ratings, told the media this week.

Maharlika Investment Corporation (MIC) president and chief executive officer Rafael Consing Jr. said he plans to initially use the fund’s proceeds to develop the country’s energy sector.

The fund consists of a P50 billion capital from state-owned Land Bank of the Philippines (LandBank) and another P25 billion from the Development Bank of the Philippines (DBP). Its authorized capital stock is P500 billion.

Public and private sector investments

The Philippine economic team has conducted investor briefings overseas and welcomed foreign trade officials and business leaders onshore to discuss the fund as it eyes investments both from the public and private sectors.

“The seed money here is not a huge amount, but I think this fund is meant to be an infrastructure financing vehicle. We’re looking out for how this fund will attract this kind of private financing,” Phua said.

However, Greeta Chugh, S&P managing director for financial institutions ratings, said she does not expect private banks to contribute to the fund in the immediate future.

Thus, Phua said S&P is highly interested in the fund’s capitalization mechanisms.

“This is not a traditional sovereign fund as it is usually established on the surpluses of the government and huge pensions that can be used to invest. You could also see sovereign funds being established in the Middle East with energy exports surplus,” he explained.

Careful management of resources

Chugh said LandBank and DBP officials must carefully manage resources, following the decline in their capital due to the requirement of the Maharlika Fund.

However, she expressed optimism towards the two banks as “the government has exempted them from dividend payments which should help in building their capital level” for continuous services to their depositors and borrowers.

In a statement, Department of Finance Secretary and MIC chairman Ralph Recto said the Philippines is securing membership in the International Forum of Sovereign Wealth Funds to reduce risks, stabilize the flow of capital, and impose sound measures for accountability in mobilizing the fund.

“There were preliminary discussions about investment strategies, but we need to set the proper framework first,” MIC member and LandBank President Lynette Ortiz said.

Consing said the MIC expects to start mobilizing capital for the Maharlika Investment Fund by the fourth quarter this year.

Some government officials think Filipinos can start feeling the fund’s benefits in four to five years.