Aboitiz fears financing problems as rates soar

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The Aboitiz group is looking for new investments with higher returns, fearing that rising interest rates will make financing future projects more expensive.

Aboitiz Equity Ventures Inc. (AEV), the Aboitiz Clan’s flagship power, food, banking and real estate conglomerate, is aggressively expanding its core businesses and has recently diversified into new segments, especially infrastructure such as airports, which require heavy capital expenditure.

Higher borrowing costs would shift their focus to more profitable investments or explore alternative sources of funding, AEV’s chief financial officer Manuel Lozano said on Friday.

“Our existing portfolio of loans and bonds does not have a floating component which exposes us to the risk of higher interest rates. However, this poses a challenge for new projects,” Lozano said.

“The rates of return that we are looking for in these projects will have to be better so that we can compensate for the higher interest rates and it looks like those interest rates are going to stay high for a longer period. This is not a short-term problem,” he said.

“I think everyone will have to adjust how they view projects, how they fund them, and they will have to factor in higher interest rates,” Lozano added.

The Bangko Sentral ng Pilpinas (BSP) has hiked rates by 225 basis points so far this year, joining global central banks in tackling soaring inflation.

Last week, BSP Governor Felipe Medalla said he would raise the benchmark rate an additional 75 basis points on November 17 to match the latest monetary policy measures in the United States.

Lozano’s comments come as the Aboitiz conglomerate approved the sale of up to 20 billion pesos of fixed-rate bonds to partly finance the acquisition of the private operator of Mactan Cebu International Airport, the second busiest gateway in the country.

Last September, the Aboitiz Group reached a 25 billion peso deal to acquire the entire Cebu airport project from Megawide Construction Corp. tycoon Edgar Saavedra and GMR Infrastructure in India by 2024.

Other airport projects were underway, with the group aiming to build a regional network of gateways with the Cebu project serving as the main hub, Aboitiz InfraCapital President and CEO Cosette Canilao said Friday.

She said they would pursue the airport proposals at Bohol, Laguindingan and Bicol, which remain valid as Aboitiz had previously obtained Exclusive Original Proponent (OPS) status for the said projects.

“We are submitting additional requirements to the government to advance our OPS,” Canilao said, adding that they were open to other air gateways that would be tendered under a public-private partnership.

“We want to build an airport hub and having Mactan as an anchor asset would make sense for regional airports,” she explained.

At the same time, other Aboitiz subsidiaries have shown a preference for equity financing of new investments.

On November 2, UnionBank told the stock exchange that its board had approved a plan to raise funds of up to 20 billion pesos through another rights offering, private placement or combination of the two.

Last May, it raised 40 billion pesos from a rights offering to partially fund the takeover of Citi Philippines’ consumer business and sold 11 billion pesos of bonds in June.

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