Finance for Senior Executives Asian Institute of Management February 28- March 17, 2000

1. Financefor Senior ExecutivesAsian Institute of Management February 28- March 17, 2000 Financial Management in the Philippines Professor Victor S. Limlingan

2. Role of Financial Management • Marketing/Operations create value for customers • Finance supports Marketing/Operations create value for customers • In so doing, Finance improves financial security of stakeholders and increases financial value of shareholders 2

3. Role of Finance in the Philippines (The Recent Past) • During the Asian crisis, to establish and expand the breathing space as companies reposition to create more appropriate values for customers through: • Redeployment of Assets • Restructuring of Debts • Rehabilitation of Financial Condition • Revising Financial Policies 3

4. Revising Financial Policies • Debtor’s Priority • Lender’s Curse (Asymmetry of Information) • Agency Problem • Barter Deals 4

5. Role of Finance in the Philippines (The Present) • At present, shield the company from the adverse effects of the on-going restructuring of the Philippine Banking System. Adverse effects can not be avoided as the Stock Market is down and the market for Commercial Papers disappeared with the bankruptcy of corporate issuers. 5

6. The Philippine Banking Situation • Non-performing loans at critical levels so banks become stricter in credit evaluation at a time of • Declining demand for loans and no attractive alternative for investible funds given the • low interest on Treasury Bills forcing banks to accept • Result: Diminishing spread on loans 6

7. The Philippine Banking Situation • Diminishing loan spreads forces banks to concentrate on fee-based services (clients resist) and to take forex positions (risk increased) and so • Downsizing is resorted to and if not successful consider • Mergers and Acquisitions before • Entry of Foreign Competitors 7

8. Implications for Financial Managers • Companies must be placed in strong financial position to qualify for bank financing • Can no longer rely on strength of collateral (the banks are awash with foreclosed assets) • Once qualified, company is in a strong bargaining position • especially with respect to the foreign banks coming into the Philippines 8

9. Role of Finance in the Philippines (The Future) • Once the Philippines is integrated into the global financial system, the role of Finance in the Philippines will change • Integration can place Philippine companies on an equal financial footing with international competitors if financial managers are capable • Integration will occur despite • political situation • capital market situation 9

10. Implications of integration into Global Financial System • Access to surplus capital from the Developed Countries • Shift from banks to the capital market • Shift from local to international capital markets • Increasing use of financial derivatives 10

11. Implications for Philippine Companies • Joint ventures/Strategic Alliances with international companies • Public Listing of Company Shares • Public credit ratings • Public disclosure of financial condition of the company • Public disclosure of company plans and projections 11

12. Implications for Financial Managers • Changes in debt financing (from banks to the Commercial Paper/Bond markets) • securitization of assets (market judgement on quality of assets) • block rather than discrete borrowing • refinancing rather than roll-overs • continuous repackaging 12

13. Implications for Financial Managers • Public listing will enhance shareholder value if Institutional Investor principles are followed: • Be serious about your projections • Use earnings wisely or return immediately • We are better at diversification than you, so let us, not you do the diversifying • We will hold your directors, your auditors and your advisers responsible for company performance and behavior 13

14. THEN I have the capital, I will choose the business ideas NOW I have the business idea, I will choose the capital In conclusion 14