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Which businesses will gain/lose from BSP rate increase?

agapanthus · 10 · 2497

agapanthus

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BSP just now hinted a rate increase. How will this effect the stock market? Which businesses are at risk/highly in debt?


Hawkish BSP hints at rate hike
Tightening may start after next week’s policy meeting http://business.inquirer.net/166622/hawkish-bsp-hints-at-rate-hike 


wilch23

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I believe all these companies get loans every so often, so higher rates is not good for businesses. Banks give out loans, so they should be good for higher rates, right? Not really, because they also borrow money, plus higher rates means less people will borrow from banks, resulting in less income.

Overall, traders who are leveraged will tend to lighten up or get out of the market. Borderline investors will shift to fixed instruments if the rates are attractive with negligible risk.

That is why the market is down.


Gox

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One of the companies that come to mind, San Miguel Corp. It is highly leveraged with lots of peso and USD-denominated loans. If those peso loans are floating and not fixed, San Miguel would have to pay more in interest expense.

In general, higher rates would be bad for properties and utilities. Properties sell residential units and people buy when they can get cheap financing. If rates are high, it would be harder for them to buy houses/condos and thus less sales for property firms. Utilities are capital -intensive and require a lot of money to build power plants, facilities, etc. They usually get funds from loans, rather than equity, so they are also heavy on loans.


wilch23

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That is why a lot of real estate companies are also into malls and BPO rentals. This is a hedge against high interest rate dampening their sales.

As regards companies like SMC, their loans with the banks may be affected. That is why a lot of their loans are actually in preferred shares and bonds, which have fixed rates and terms. Notice how often companies are selling bonds for the last few years?


Gox

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That is why a lot of real estate companies are also into malls and BPO rentals. This is a hedge against high interest rate dampening their sales.

As regards companies like SMC, their loans with the banks may be affected. That is why a lot of their loans are actually in preferred shares and bonds, which have fixed rates and terms. Notice how often companies are selling bonds for the last few years?

Agreed, you just have to be careful with the smaller and less established property companies. They usually just sell residential condominiums and have no rental income. Additionally, they usually serve the low to middle cost housing which is a bit oversupplied according to some.

With regards to companies selling bonds, yes, this year was indeed a year of countless bond offerings. These tycoons really know what they're doing.


Wills

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Oversupplied? Says who? thanks


Gox

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Oversupplied? Says who? thanks

Not really 100% sure its true. I just hear it around often. Apologies, I can't back up my statement with data


wilch23

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Apology accepted but not really needed, you stated your view, that's all.

I have the same view. I believe it is getting saturated that is why they are now going outside MM and also outside Luzon. Have you noticed that there are now constructing hi-rise condo outside MM? More malls also in places far away from MM.


kulatir

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Apology accepted but not really needed, you stated your view, that's all.

I have the same view. I believe it is getting saturated that is why they are now going outside MM and also outside Luzon. Have you noticed that there are now constructing hi-rise condo outside MM? More malls also in places far away from MM.

Yes, and CPG has 1 upcoming project in Pampanga, kamukha din ata ng Azure.


wilch23

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Which means real estate speculators beware, while investors be ready for the lull.


 


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