Northern Arc Capital raises $25 million debt from FMO

Northern Arc Capital, a Chennai-based non-banking finance company (NBFC), has

raised $25 million in debt from Dutch impact investor FMO. The fundraising comes close on
heels of $10 million debt raised by the company last month from US-based Calvert Impact
Capital.

Besides Calvert Impact, Northern Arc has attracted debt financing from an array of global
Development Finance Institutions (DFIs) and impact investors over the last 12 months including
from US International Development Finance Corporation (DFC) and Asian Development Bank
(ADB).

Microfinance borrowers in both urban and rural areas will be key beneficiaries of FMO’s
investment, the debt financing platform said in a press release.

“A sizable part of the fund deployment will be towards MFIs whose loans are primarily
targeted at women. The loans will play an important role in providing credit to the under-banked
households and small businesses, who have been worst hit due to the crisis,” it added.

Commenting on the deal, Bama Balakrishnan, COO of Northern Arc said, “Northern Arc
and FMO are natural partners in furthering the cause of financial inclusion in India. With a
shared philosophy of catering to borrowers hard hit by Covid-19 pandemic, the facility from
FMO is timely and would specifically be used for lending to women, micro-entrepreneurs and
SMEs.”

As of March 31, 2021, Northern Arc has enabled significant debt financing of around Rs.
95,000 crore for its clients across microfinance, small business finance, affordable housing
finance, vehicle finance, agriculture finance, consumer finance, fintech and mid-market
corporates.

Over 140 investors including banks, asset managers, insurance companies, DFIs, private
wealth have invested in transactions structured and arranged by Northern Arc Capital.

“The new transaction fits with FMO’s ambition to accelerate financial inclusion with a
focus towards women-run businesses and (M)SMEs. With this transaction, FMO supports an
excellent partner who continues to service its clients during these challenging COVID-19 times,”
Huib-Jan de Ruijter, Chief Investment Officer (a.i), FMO was quoted in the release.

Financial crisis: Indian companies sells shares at fastest rate

A boom in Indian stocks has encouraged companies to raise cash at the fastest rate since
the global financial crisis, raising fears that share prices are overheating as the country grapples
with rising COVID-19 cases. Companies in India have raised $1.6 billion through 13 initial
public offerings so far this year, according to Refinitiv, marking the biggest haul from equity
listings since the corresponding period of 2008.

The previous week has been the busiest of 2021, with five companies launching IPOs.
Among them are diamond and gold merchant Kalyan Jewellers, chemicals maker Laxmi Organic
Industries and Nazara Technologies, the first Indian gaming company to go public. Mirroring a
global trend, Indian businesses have rushed to public markets this year to take advantage of a
record-breaking equity rally. The BSE’s benchmark Sensex index nearly doubled from its lows
at the start of the coronavirus pandemic to more than 52,000 points in February.

Over “the last five years the equity market itself was very dull and there wasn’t much
happening in terms of IPO activity”, said Hemang Jani, an equity strategist at brokerage Motilal
Oswal. “This year we’re seeing very strong momentum and there’s a big pipeline.” The
momentum has also spread to follow-on equity sales by listed companies. Real estate group
Godrej Properties raised Rs37.5bn ($517m) through a share sale that closed last week. Private
equity firm Carlyle is also selling a similarly valued chunk of shares in SBI Cards, the credit card
provider of India’s largest bank, which went public last year.

Some on the other hand are approaching the recent run of share sales with caution,
worrying that it could signal the market is overheating as the rally outpaces India’s corporate and
economic recovery from the pandemic. From a low of fewer than 10,000 daily Covid-19
infections last month, India recorded nearly 40,000 on Friday, raising fears of new growth-
choking restrictions. The Sensex has fallen more than 5 per cent from its highs last month, as
rising US bond yields dampen the appeal of high-yielding but riskier emerging market assets.
“The euphoria is reaching crescendo levels,” said Vasudev Jagannath, head of sales at brokerage
IIFL Securities. “There’s so much activity happening and everything is getting lapped up.” He
added: “If you put all the pieces together, it kind of signals that the market is due for a correction
now given how much primary and previously non-free float stock is coming up for sales.

This could also have another three months or six months.” Nazara, which launched its
IPO on March 17, is the first of a crop of fast-growing Indian mobile gaming companies to go
public. It is looking to raise Rs5.8bn, with demand for the shares on offer outstripping supply by
175 times as of Friday afternoon. It heralds what is expected to be a flurry of tech IPOs in India
this year, following the success of listings such as DoorDash in the US. Zomato, a food delivery
company whose investors include venture capital firms Tiger Global and Sequoia, and SoftBank-
backed insurance comparison site Policybazaar are also expected to list. “There’s general
enthusiasm,” said Neha Singh, chief executive of data provider Tracxn. “Markets are at an all-
time high so people want to take advantage.”
 P38 billion demand yearly to fund pension increase – SSS
MANILA, Philippines — State-run Social Security System (SSS) will need to shell out
about P38 billion in additional expenses a year to fund the proposed second tranche of P1,000
pension hike, an official said yesterday.

In a media webinar, SSS vice president for public affairs and special events Fernan
Nicolas said the proposed pension hike would have huge funding requirements if implemented.
“The amount to be released is huge. We need an additional P38 billion a year so that we can fund
the P1,000 increase,” he said, noting that there are currently about 2.8 pensioners in the system.

Nicolas said the need for more funds could still increase as more members of the SSS
retire.

Given the huge requirements, the SSS official reiterated that there is a need to study the
proposed pension hike to ensure that the state pension fund can truly afford to release additional
benefits. “We need to study this because the system, the fund should be financially sound before
we can release it,” he said.

Nicolas warned that granting the P1,000 pension hike without a proper study would be
“dangerous” considering the fund’s current financial position, which has been affected by the
coronavirus pandemic. “The SSS lost huge contributions monthly because many members lost
their jobs,” he said.

However, the SSS official clarified that the state fund is not against the proposed pension
hike, which is a campaign promise of President Duterte. “We are not opposing. But at this point
in time, as said by our president Aurora Ignacio, we need to study this thoroughly because we
have an economic crisis and the SSS is affected,” he said.

During the Laging Handa briefing on Wednesday, SSS president and chief executive
officer Aurora Ignacio said implementing the P1,000 pension hike would not be good for the
SSS “in the coming years.” Ignacio said the   pandemic has affected the management of the fund,
as the SSS expects to pay more benefits than the contributions it would collect.

The state pension fund booked a total net income of P28.57 billion in the first nine
months, a decline of 8.05 percent   from P31.07 billion in the same period last year. Total
contributions also declined by 4.8 percent to P153.15 billion from P160.91 billion, while
investment and other income surged 85.3 percent to P22.46 billion from P12.12 billion. Benefit
payouts, meanwhile, reached P130.8 billion, down 4.05 percent as compared to last year’s level
of P136.32 billion.
 Pandemic slashed GSIS net income by 40% in 2020
As it disbursed more financial support to its members and pensioners amid the COVID-19
pandemic, the net income of state-run Government Service Insurance System (GSIS) fell by two-
fifths to P62.76 billion in 2020.

The GSIS’ latest unaudited financial statement showed that the 40-percent drop from its
2019 net income amounting to P104.95 billion was mainly due to a jump in the pension fund’s
expenditures last year.

Total expenses ballooned to P287.59 billion in 2020 from P231.32 billion in 2019, mainly
as noncash expenses rose by over half to P155.59 billion.

The GSIS’ expenditures on personnel services also rose to P5.27 billion while maintenance
and other operating expenses inched up to P126.63 billion.

Its financial expenses, however, declined to P88.5 million from P118.2 million in 2019.

At the height of the longest and most stringent COVID-19 lockdown in the region, the
GSIS offered various loan programs and continued to release benefits on time in consideration of
the harder times wrought by the pandemic

It also shouldered insurance benefits to families of medical front-liners in public health

institutions who died while in the thick of the battle against COVID-19.

The GSIS’ expenses last year grew at a faster pace than the increase in its total income to
P350.45 billion from P336.36 billion in 2019.
 Service and business income as well as gains increased to P214.49 billion and P135.41
billion, respectively.

Oher non-operating income dropped to P540.24 million in 2020 from P1.26 billion in 2019.

Thai NBFIs Face Greater Pressure from COVID Shock

Fitch Ratings-Bangkok-06 May 2021: Fitch Ratings has changed its outlook on
the operating environment rating factor to negative for Thai non-bank financial
institutions (NBFIs), due to the economic and business disruptions caused by the
coronavirus pandemic.

Fitch forecasts Thai GDP to contract by 5.1% in 2020, which would be the weakest level
since the 1997 Asian financial crisis. The severity of the economic shock will lead to a materially
weaker trajectory for the performance of Thai NBFIs over the credit cycle, compared with our
previous expectations and despite our forecasts of a moderate economic recovery in 2021.

Thai securities companies face considerable downside risks from expected weakness in
local capital markets and investor sentiment, which will reduce revenue from investment banking
and wealth management. Brokerage commissions have risen so far in 2020 due to an increase in
trading activities, but this may not be sustainable if economic conditions remain poor.
Furthermore, extremely high levels of volatility could increase the possibility of large,
unexpected investment losses that will affect the issuers' balance sheets.
 Thai consumer finance and leasing companies also face significant challenges, particularly
to asset quality, from the sharply weakening operating environment. Regulatory relief measures
on loan classifications and debt moratoriums will delay realization of credit losses. However, the
companies could experience increased non-performing loans and higher credit costs once these
measures expire. Thailand's high household debt level (80% of GDP at end-2019) means that
asset-quality risks are likely to crystallize, if there were to be a prolonged negative impact on
consumers. Meanwhile, bond market disruption has heightened funding risk, which leaves
smaller and weaker finance companies exposed to greater liquidity risks due to their lack of
stable funding sources and maturity mismatches.

Stronger NBFIs, with well-established franchises, strong capital levels, and sound liquidity
profiles, would be better positioned to cope with the more-challenging operating environment.
These are mostly subsidiaries of stronger local banks or foreign institutions. The ratings on most
independent NBFIs in Fitch's portfolio have been placed on Negative Outlook, reflecting
pressure across the various sectors.

For securities companies, a severe deterioration in earnings-generating capacity, with no

prospects of recovery over the next one to two years, combined with reduced buffers, would
lead to rating downside. For consumer finance and leasing companies without strong
institutional support, severe asset-quality weaknesses and an expected failure to return to pre-
crisis financial benchmarks, or inability to access funding, could trigger a downgrade.
 Debt to GNI ratio rises 25.5% - DOF

The Department of Finance (DOF) said the country’s external debt as a ratio to Gross
National Income (GNI) increased to 25.2 percent as of end-2020 from 20.2 percent in 2019.

“As a percent of Goods and Services and Primary Income, it also climbed to 88.1 percent
from 64.6 percent,” the DOF said in a statement.
 The DOF added the increase is primarily due to public sector debt which expanded from
$42.8 billion to $58.1 billion.

“Compared with two decades ago when the country was recovering from the Asian
financial crisis, external debt ratios in 2020 were significantly lower at 30.9 percentage points
lower than the debt-GNI ratio and 18.1 percentage points lower than the debt-exports ratio in
2000,” the DOF said.

Compared with those of its Asian peers meanwhile, the latest data from the World Bank
show that the external debt ratios of the Philippines are relatively low, the DOF also stressed.

“As a percent of GNI, the Philippines’ external debt ratio is only 20.19 percent, compared
to the 28.95 percent average for 6 Asian economies in 2019. The country’s ratio is the third
lowest behind China and Indonesia and is 8.76 percentage points lower than the average for
2019,” it said.

“The Philippines’ prudent debt policy has enabled the country to strengthen its defenses
against external shocks like the COVID-19 pandemic. This is one of the reasons for the strong
confidence of investors in the Philippine economy. Nevertheless, we must continue to prudently
manage our fiscal situation and continue to observe fiscal responsibility,” the DOF said.