GT Capital’s Bonds Keep Highest Ratings
The rating for the total outstanding PhP15.1 Billion bonds of GT Capital Holdings, Inc. (PSE: GTCAP), the primary vehicle for the holding and management of the business interests of the family led by the late Dr. George Ty Siao Kian in the Philippines, was maintained at PRS Aaa/Outlook: Stable by the Philippine Rating Services Corporation (PhilRatings).
GT Capital is a major listed Philippine conglomerate with interests in market-leading businesses in banking; automotive assembly, importation, distribution, and financing; property development; life and general insurance; and infrastructure and utilities.
Obligations rated PRS Aaa are of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong. PRS Aaa is the highest rating assigned by PhilRatings. A Stable Outlook, on the other hand, indicates that the rating is likely to be maintained or to remain unchanged in the next 12 months.
The assigned issue ratings take into account GT Capital’s investments portfolio which is comprised of companies with solid market positions, the strong strategic direction provided by its shareholders combined with the solid experience of its management, and sound capitalization structure. These core credit strengths are seen to counterbalance increased risks due to the ongoing community quarantine and COVID-19 pandemic and serve as a strong base for recovery as the impact of these developments gradually wanes over time.
PhilRatings’ ratings are based on available information and projections at the time that the rating review was performed. PhilRatings shall continuously monitor developments relating to GT Capital and may change the ratings at any time, should circumstances warrant a change.
Metropolitan Bank and Trust Company (Metrobank) is considered one of the strongest players in the Philippine banking industry. Based on data from the Bangko Sentral ng Pilipinas as of end-2019, Metrobank ranked second based on assets (PhP2.1 trillion) and stockholders’ equity (PhP311.0 billion). The bank ranked third in terms of loans (PhP1.2 trillion) and deposits (PhP1.5 trillion). Although its underlying business remains strong, Metrobank has taken the prudent approach of increasing its provisions to cover anticipated risks. The bank’s strong capital position is seen as a significant buffer against the current crisis. Metrobank’s capital adequacy ratio (CAR) of 17.5% as of end-2019 was the highest among its peers and was a further improvement from its 17.0% CAR as of end-2018. The bank’s capital base greatly benefited from its PhP60.0 billion stock rights offering (SRO), one of the industry’s biggest, in early 2018. Non-performing loans (NPL) ratio was relatively stable at 1.4% as of end-March 2020, while NPL cover was more than ample at 114.0%. More than 60% of Metrobank’s branch network has remained open during the present community quarantine, and this is complemented by the bank’s digital online banking services.
Toyota Motor Philippines (TMP) is the dominant automotive company in the Philippines. Toyota has remained the top vehicle brand in the country, despite keen competition from other recognized international auto brands. Since 2002, TMP has been the industry leader in terms of overall sales, for both passenger cars and commercial vehicles. From 2015 to 2019, its market share ranged from 35% to 40%. TMP’s market leadership is supported by its globally trusted brand; its dealership network offering a full range of services; the availability of original parts, supplies and service; high resale value and corporate policy of manufacturing original parts, for discontinued models, up to 15 years. Considering its dealership and network, TMP is confident that it will continue its market leadership moving forward. Also, concerns on limited public transport due to community quarantine and social distancing requirements serve to emphasize the transportation industry’s vital role in the re-opening of the Philippine economy. Amid the COVID-19 pandemic, TMP continues to maintain its market leadership and is expected to recover its previous level of sales volume in the medium to long-term.
AXA Philippines is one of the leading insurance companies in the Philippines. Based on data from the Insurance Commission (IC) for 2019, AXA Philippines was the third largest life insurer in terms of premium income (PhP26.2 billion); fourth based on assets and net income (PhP127.6 billion and PhP3.4 billion, respectively), and seventh in terms of paid-up capital (PhP1.0 billion). AXA Philippines is considered a strong player in the bancassurance market, benefiting from the wide network of Metrobank and Philippine Savings Bank (PSBank) branches. Through its equity stake in AXA Philippines, GT Capital has an indirect interest in Charter Ping An Insurance Corporation (Charter Ping An). According to IC data for 2019, Charter Ping An had the following rankings relative to other domestic non-life insurers: fourth based on net premiums written and premiums earned (PhP3.6 billion each), and fifth based on gross premiums written and assets (PhP5.4 billion and PhP12.7 billion, respectively). Currently, AXA Philippines is focusing on the protection of renewals, as well as online selling, payment, and collection due to limited mobility under the quarantine.
In 2016, GT Capital became a strategic investor of Metro Pacific Investments Corporation (Metro Pacific) by acquiring a 15.55% stake in the company, making GT Capital the second largest shareholder of Metro Pacific. The Metro Pacific Group is one of the Philippines’ largest infrastructure conglomerates, as of report writing date. The conglomerate has a presence in high-growth infrastructure businesses such as power, toll roads, railways, healthcare, and logistics. Metro Pacific’s liquidity is strongly buttressed by the PhP30.1 billion sell down of its hospital business interest in 2019. At the Parent level, Metro Pacific will continue to maintain its cash dividend per share at 2019 levels.
Through its privately-held firm, Grand Titan Capital Holdings (Grand Titan), the Ty family continues to have significant control over GT Capital, in terms of ownership and management. Albeit GT Capital’s ownership structure is concentrated, PhilRatings notes that the Ty family has been a supportive and stabilizing influence for the GT Capital Group. The family has an established track record of growing market-leading businesses in key sectors of the Philippine economy, with an in-depth knowledge of the domestic business environment. The Ty family is also backed by highly-experienced management, which also includes non-family professionals. The combination of strong majority shareholders and well-experienced management has enabled the GT Capital Group to enter into strategic partnerships with globally-recognized companies.
GT Capital’s owners and management have outlined strategies specific to each component company of the Group, taking into account the quarantine and contagion’s overall economic and industry impact, and the Group’s short-term plans to limit the immediate negative effects of these developments, as well as medium- to long-term strategies for recovery moving forward.
Capital structure remained sound, with debt to equity (DE) ratio averaging 0.7x for the historical period under review (2017 to Interim March 2020). Current long-term debt covenants of GT Capital at the Parent level provide for a DE ratio ceiling of 2.3x. Based on audited financial statements, GT Capital Parent was in compliance with this requirement, as of end-2019. Expectations are for borrowings to remain within manageable levels, with a focus on keeping a healthy balance sheet amid the current crisis.
