SMIC sees offshore opportunities | IFR
The offshore bond market offers attractive diversification benefits for SM Investments and is opening up to Philippine issuers more broadly, as spreads improve and the domestic foreign exchange market becomes more developed, said executive vice president and group treasurer Erwin Pato in an interview.
The conglomerate, which has interests across retail, property and financial services including universal banks BDO and Chinabank, continues to look for opportunities to issue off its US$3bn multi-issuer programme covering the group and real estate arm SM Prime. Total deployment under the programme so far amounts to US$850m after successful deals in 2024 and 2025.
SMIC established the programme in May 2024 to allow it to tap the market throughout the year at short notice and in a cost-effective manner in line with global best practices, explained Pato, who is a former executive at Singapore state investor (and sophisticated issuer) Temasek Holdings.
The group has around Ps100bn (US$1.7bn) of refinancing needs across bonds and loans for 2026, in addition to new requirements that the treasurer said will become evident later in the year.
Its next US dollar bond maturity is not until 2029, but it may consider offshore markets to tackle its peso maturities if pricing is attractive. When SM Prime priced its US$350m 4.75% five-year transaction at 120bp over Treasuries in September last year, issuing in US dollars was only around 5bp more expensive, after swaps, than printing in pesos, Pato said.
This compares to 20bp–30bp at the start of last year and around 100bp a few years ago.
SM Prime’s bond issue, its debut in the offshore market, achieved the lowest coupon for five-year unrated Philippine paper since September 2020, despite broader concerns around real estate companies in the region. “There is a lot of noise in Asia around property developers, but we’re very happy because we didn’t get affected,” Pato said.
SM Prime is one of South-East Asia’s largest integrated property developers and operates the Philippines’ largest mall network, with 89 locations. The success of the deal was in part thanks to the work that went into explaining the company’s profile and credit story to offshore investors, he said.
Offshore appeal
In general, the US dollar market is becoming more reachable to Philippine issuers as spreads compress in line with the sovereign’s move towards a credit rating upgrade and as the country’s foreign exchange market deepens, Pato said.
“The Philippine government is trying to get to that aspirational A rating territory. Flood control corruption probe aside, I think that is the trajectory,” he said, referring to an ongoing investigation into corruption in government-funded flood control projects that has affected fiscal spending and GDP growth.
The Philippines is rated Baa2/BBB+/BBB. Few non-bank corporates in the Philippines have an international credit rating and their ratings are capped at the sovereign level.
SM Investments and SM Prime are unrated but treated as investment grade paper by international investors. Subsidiaries BDO and Chinabank are rated Baa2/BBB– (Moody’s/Fitch) and Baa2 (Moody’s), respectively.
Meanwhile, increased liquidity and FX capabilities are allowing Philippine issuers to better hedge currency risk and access longer tenors in offshore bonds.
“These two factors have made offshore issuances more reachable to them,” Pato said. However, issuers without a programme like SMIC’s remain constrained by the length of time it takes them to come to market, he said.
“If you plan a standalone issuance, you have a three-month window and the thing with the offshore bond market it can be volatile – you don’t know what you will expect at the end of the window,” he said. Pato was speaking to IFR ahead of the Middle East conflict which sent markets into turmoil at the start of March.
For SMIC, the next priorities will be becoming a more frequent bond issuer and reaping the benefits of diversification from offshore markets. While the US dollar currently remains the deepest market for Asia, Pato said the group is open to exploring new liquidity sources – including eventually new currencies in private placement format.
“Over the last two years we have been proving to the market that we’re a responsible issuer, engaging with investors and pricing deals correctly … Those [new] markets tend to open up when you do things responsibly and build that credibility – so that’s what we’re tracking.”
