Philippines - Fifth Development Corporation Project

Document of The World Bank OniL E A"" y FOR OFFICIAL USE ONLY F u r C Report No. 1784-PH PHILIPPINES STAFF APPRAISAL REPORT ON THE PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES December 14, 1977 Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1 = P 7.50 P 1 = US$0.133 P 1 million = US$133,300 P 1 billion = US$133 million ABBREVIATIONS ADB - Asian Development Bank BOI - Board of Investment DBP - Development Bank of the Philippines DFI - Development Finance Institute (PDCP) ERR - Internal Economic Rate of Return FCDU's - Foreign Currency Deposit Units FRR - Internal Financial Rate of Return IGLF - Industrial Guarantee and Loan Fund NBFI's - Non-Bank Financial Intermediaries NEDA - National Economic Development Authority OBU's - Offshore Banking Units PDCP - Private Development Corporation of the Philippines PNB - Philippines National Bank SBP - Small Business Program (PDCP) USAID - United States Agency for International Development  FOR OFFICIAL USE ONLY PHILIPPINES PRIVATE DEVELOPM4ENT CORPORATION OF THE PHILIPPINES STAFF APPRAISAL REPORT Table of Contents Page No. Basic Data . . . . . . . . . . . . . . . . . . . . . . . . . . . i iv 1. THE INDUSTRIAL SECTOR .1.. . . . . . . . . . . . . . . . . . I Recent Developments ...1. . . . . . . . . . . . . . . . . . 1 Structure of Manufacturing Industry . . . . . . . . . . . . 2 Industrial Investment. 3 Industrial Sector Issues and Policies . . . . . . . . . . 4 Prospects . . . . . . . . . . . . . . . . . . . . . . . . . 9 2. THE FINANCIAL SECTOR .... . . . . . . . . . . . . . . . . 10 Overview . . . . . . . . . . . . . . . . . . . . . . . . . 10 Institutional Structure .10 Recent Developments .15 Financial Sector Issues ..17 3. PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES . . . . 19 A. Institutional Aspects .19 Corporate Purpose .19 Ownership and Share Capital . . . . . . . . . . . . . . . 19 Board of Directors .20 Organization, Management and Staff . . . . . . . . . . . 20 Operating Policies and Development Strategy . . . . . . . 22 Procedures .23 B. Operations . . 24 Summary of Operations .24 Loan Operations . . . . . . . . . . . . . . . . . . . . 24 Equity Investments . . . . . . . . . . . . . . . . . . . 26 Guarantee Operations . . . . . . . . . . . . . . . . . . 26 Syndications and Underwritings . . . . . . . . . . . . . 27 Money Market Operations . . . . . . . . . . . . . . . . . 27 Interest Rates .28 This report was prepared by Messrs. Zamir Hasan and Rainer Ullmann following their visit to the Philippines in August 1977. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Page No. C. Economic Role of PDCP ... . . . . . . . . . . . . . . . 28 PDCP in Perspective . . . . . . . . . . . . . . . . . . . 28 Economic Impact of PDCP Lending . . . . . . . . . . . . . 29 Regional Dispersal of Loans . . . . . . . . . . . . . . . 29 Economic Profile of a Sample of PDCP-Financed Projects. . 29 The Small Business Program. . . . . . . . . . . . . . . . 31 Resource Mobilization . . . . . . . . . . . . . . . . . . 32 Other Developmental Activities. . . . . . . . . . . . . . 33 D. Financial Condition, Operational Performance, Quality of Portfolio and Resource Position . . . . . . . . . . . . 33 Financial Condition .33 Operational Performance . . . . . . . . . . . . . . . . . 35 Quality of Portfolio ... . . . . . . . . . . . . . . . 35 Resource Position ... . . . . . . . . . . . . . . . . . 38 E. Prospects .... . . . . . . . . . . . . . . . . . . . .39 General Outlook . . . . * . . . . . . . . . . . . . . . . 39 Business Forecast . .. . . . . . . . . . . . . . . . . . 39 Resource Requirements ... . . . . . . . . . . . . . . . 40 Projected Financial Condition and Performance . . . . . . 41 Earnings Forecast and Debt Service Coverage . . . . . . . 42 4. CONCLUSIONS AND RECOMIMENDATIONS . . . . 42 Objectives of the Proposed Loan . . . . . . . . . . . . . . 42 Expected Utilization of the Proposed Loan . . . . . . . . . 43 Agreements Reached During Negotiations . . . . . . . . . . 43 Recommendation ....................... 43  LIST OF ANiNEXES 1. The Economy 1.1 Interest Rates Charged by Financial Institutions, Prior and After January 2, 1976 2. Ownership, Organization, Management and Policies 2.1 List of Shareholders, as of June 30, 1977 2.2 Board of Directors, as of June 30, 1977 2.3 Organization Chart, as of June 30, 1977 2.4 General Business Policies 2.5 Outline of Development Strategy for the Rest of the Seventies 3. Operations 3.1 Summary of Operations, 1972 - June 30, 1977 3.2 Summary of Loan Operations, 1974 - June 30, 1977 3.3 Characteristics of Loans Approved, 1974 - June 30, 1977 3.4 Characteristics of Loans Approved under the Small Business Program, 1974 - June 30, 1977 3.5 Summary of Underwriting and Equity Investment Operations, 1972 - June 30, 1977 3.6 Summary of Loan Syndications, 1972 - June 30, 1977 3.7 Summary of Money Market Operations, 1974 - June 30, 1977 3.8 Volume of Short-Term Investments and Borrowings, July 1, 1976 - June 30, 1977 3.9 Interest Rates and Other Charges of PDCP, as of June 30, 1977 4. Economic Role 4.1 Summary of Economic Indicators of a Sample of 106 PDCP-Assisted Projects 4.2 Estimated Versus Revised Economic and Financial Rates of Return on a Sample of 24 Completed Projects 5. Financial Conditions 5.1 Summarized Audited Balance Sheets, as of December 31, 1972 - 1976 and June 30, 1977 5.2 Summarized Audited Income Statements, 1972 - June 30, 1977 5.3 Condition of Loan Portfolio in Arrears, as of June 30, 1977 5.4 Collection Performance, 1972 - 1976 5.5 Comparative Statement of Arrears Position, 1974 - June 30, 1977 5.6 Age Structure of Loans in Arrears, as of June 30, 1977 5.7 Repayment Status of Loans, as of June 30, 1977 5.8 Equity Investments, as of June 30, 1977 5.9 Resource Position, as of June 30, 1977  -2- 6. Projections 6.1 Forecast of Approvals, Commitments and Disbursements, 1977-81 6.2 Projected Summarized Income Statements, 1977-81 6.3 Projected Cash Flow Statements, 1977-81 6.4 Projected Summarized Balance Sheets, December 31, 1977-81 6.5 Projected Financial Ratios 7. Schedule of Projected Draw-Downs from Proposed Bank Loan of US$30 million 8. Related Documents and Data Available in the Project File  PHILIPPINES PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES Basic Data 1. Year of establishment: 1963 2. Ownership (as of June 30, 1977): Number of shareholders Amount Percent (f '000) Class "A" Shareholders (Filipino) Private institutions 213 34,639 57.4 Individuals 1,067 7,623 12.6 Subtotal 1,280 42,262 70.0 Class "B" Shareholders (any person or entity) Filipino 60 387 0.6 Non-Filipino 59 17,726 29.4 Subtotal 119 18,113 30.0 Grand total 1,399 60,375 100.0 3. Status of IBRD and IFC Loans (as of June 30, 1977): Rate of Loan Loan No. Date signed interest amount Committed Disbursed Outstanding /a