PAL Closure Pushes Stocks Lower

Manila Standard
Tuesday, September 22, 1998
By Elaine S. Ramos

The stock market ended with moderate losses yesterday, weighed down by investor concerns over the consequences of the impending closure of debt-ridden Philippine Airlines (PAL).

The Phisix closed 10.35 points or 0.9 percent lower at 1,164.26. It has lost a total of 104.98 points or 8.27 percent in just two days.

Losers outnumbered gainers 56 to 18, while 38 of the 112 issues traded did not move.

A total of 217 million shares changed hands for P1.46 billion, including block sales worth P722.6 million.

No sector was spared from losses.

The broader all-shares index was down 3.08 points to 390.01.

Among the biggest losers were Philippine National Bank (PNB), the biggest local creditor-bank of PAL, and Petron Corp., a major supplier of aviation fuel to the airline.

PNB's share price dropped from P27 each to P25.50. Petron eased down to P2.70 from P2.80 per share.

PNB has a fully collateralized exposure of $80.2 million to PAL.

Petron Corp. has receivables amounting to P220 million from PAL. PAL's orders accounted for roughly 70 percent of Petron's sales in aviation gas. A slack in demand amid a slowdown in the economy would cut down on Petron's revenues. A government with a "pro-poor" stance would have difficulty raising fuel prices.

The peso averaged P44.154 to the dollar from Friday's average of P43.891. The weaker peso was attributed to the weaker yen and worries over banks' exposure in PAL.

Helen Alvarez, head of research of All Asia Securities, said: "It's a big blow to the economy."

PAL has been unable to make payments on debts of $2.1 billion even after a 60-day moratorium filed with the Securities and Exchange Commission. Analysts, however, said that the amount would just be around 0.7 percent of the total loans in the Philippine banking system.

Banks' non-performing or bad loans hit 9.7 percent in June and analysts said PAL's closure would likely mean an additional one point rise in NPL ratios.

A senior analyst with a foreign brokerage house said that trading was mixed. "It practically moved sideways but with a downward bias. There was no major news that could perk up the market. PAL's closure was just the latest in the string of bad news that the market has to contend with. The recent typhoon could further drag down agricultural production, which is a key component of the Philippine economy. The political situation is deteriorating, though imperceptibly, prospects of political tension could easily drive foreign investors away.”

He said the only one good thing about the market right now is the possibility that it may have already hit the bottom. "It tested levels below 1,100 several times, but so far, the 1,000 seemed to be holding up:"

Big foreign fund managers have already done their part of unloading. According to his rough estimates, only P10-P15 million is left out of every P100 million worth of investments they have in the stock market. Fund managers have been avoiding local equities for sometime now.

"Given that most foreign fund managers are on the sidelines, the market would remain sentiment-driven and turnover would remain thin. This kind of market would likely last over the medium term since we don't expect fundamentals to significantly improve in the next six months."

He advised investors to accumulate on dips. He suggested a slow accumulation of PLDT shares below the P800 level for a long-term horizon of at least three years.

PLDT shares continued to attract interest following the news that Social Security System was the major buyer of the issue last Thursday. SSS is increasing its stake from the previous 7.5 percent to 10 percent. Several parties, according to the grapevine, are interested in buying into PLDT, or at least acquire a substantial stake in the telecom firm.

"What would be the most convenient way for them than to do it through government financial institutions such as SSS?" said a PSE source.

Allan Araullo, VP for Research of Regina Capital Development, said that unlike last week's wild gyrations, the market has settled back to the usual sideways movement. "Inflation and the result of the US Federal Open Market Committee meeting will not come out until next week. In that case, plays would likely be limited to certain stocks."