Sonny Boy A.

Sajonia ABM-12

1. Philippine Credit Rating (Moody and Fitch)

What is the Philippine’s Credit Rating?

A credit rating is an assessment of the creditworthiness of a borrower in general terms or with

respect to a particular debt or financial obligation. A credit rating can be assigned to any entity
that seeks to borrow money — an individual, corporation, state or provincial authority, or
sovereign government.

Credit assessment and evaluation for companies and governments is generally done by a credit
rating agency such as Standard & Poor’s (S&P), Moody’s, or Fitch. These rating agencies are
paid by the entity that is seeking a credit rating for itself or for one of its debt issues.

Philippines - Credit Rating

Standard & Poor's credit rating for Philippines stands at BBB with positive outlook. Moody's
credit rating for Philippines was last set at Baa2 with stable outlook. Fitch's credit rating for
Philippines was last reported at BBB with stable outlook. In general, a credit rating is used by
sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of
Philippines thus having a big impact on the country's borrowing costs.

2. What is the purpose of Credit Rating?

A credit rating is a comprehensive tool for assessment of an obligor’s creditworthiness, of

reliability of its debt obligations and for establishing fee for relevant credit risk.

It allows the rating’s bearer to show potential investors and partners its creditworthiness without
divulging any confidential information, and to make relations between obligor and investor
highly transparent and efficient.

High credit rating enables the obligor to get resources at lower rates, albeit a credit rating itself,
whatever level it is, is a benefit for the obligor, since it exhibits information transparency of the
entity rated.

Employment of a credit rating by its bearer

Obtaining a credit rating is necessary for a company which strives to confirm its transparency,
reliability and financial strength.

This need may occur in the following cases:

 issuing corporate bonds – the issue rating empowers the investors to see the quality of
these bonds, which contributes to successful placement of the issue;
Sonny Boy A. Sajonia ABM-12

 attraction of investments – the rating history in the company creates a favorable financial
reputation, which is of great importance for the investor (especially for a foreign one) in
implementing long-term projects;

 intention to sign a contract with suppliers (especially with foreign ones) – when a
company has a rating, the partners may offer more profitable contractual terms, for
instance to waive a letter of credit and to provide defer of payments.

A credit rating empowers its bearer to:

 strengthen relations with all types of counterparties;

 be distinguished among other Ukrainian issuers and to attract investors;

 show efficient financial performance without divulging any confidential information;

 place bonds or other debt instruments on the best terms;

 create a positive track record and financial reputation;

 diversify lending vehicles and to reduce their servicing cost;

 obtain an unbiased evaluation of company’s performance;

 determine key strategic factors, which affects obligor’s creditworthiness.

Employment of credit ratings by participants of the financial market

Today credit ratings are the most reliable source of information on creditworthiness of a potential
business partner. A rating report contains impartial information, which is necessary for analysis
of investment risks.

The scope of employment of ratings is very wide. They may be used by different participants of
the financial market, for instance by:

 investors (both companies and individuals) when analyzing risks associated with
investing in a company or its securities (including investing in construction projects), and
when deciding on depositing funds;

 insurance companies, non-state pension funds, asset management companies – when

placing their reserves;

 banks – when deciding on granting a loan to a company or purchasing its securities;

Sonny Boy A. Sajonia ABM-12

 leasing companies – when analyzing a would-be leasing recipient;

 companies – when deciding on cooperation with its counterparties and on terms for
granting a goods credit.

Credit ratings are an important tool for borrowers to gain access to loans and credit cards. Good
credit ratings allow people to easily borrow money from financial institutions or public debt
markets. At the consumer level, banks will usually base the terms of a loan as a function of your
credit rating; this means that the better your credit rating, the better the terms of the loan
typically are. If your credit rating is poor, the bank may even reject you for a loan.

At the corporate level, it is usually in the best interest of a company to look for a credit rating
agency to rate its debt. Investors often times base part of their decision to buy a corporation's
bonds, or even the stock, on the credit rating of the company's debt. Major credit agencies, such
as Moody's or Standard and Poor's, perform this rating service for a fee. Usually, investors will
look at the credit rating given by these international agencies as well as ratings given by
domestic rating agencies before deciding to invest. (Learn more in "A Brief History of Credit
Rating Agencies.")

Credit ratings are also important at the country level. Many countries rely on foreign investors to
purchase their debt, and these investors rely heavily on the credit ratings given by the credit
rating agencies. The benefits for a country of a good credit rating include being able to access
funds from outside their country, and the possession of a good rating can attract other forms
of financing to a country, such as foreign direct investment. For instance, a company looking to
open a factory in a particular country may first look at the country's credit rating to assess its
stability before deciding to invest.

3. What are the total numbers of SMEs (Small, Medium Enterprise) in the Philippines?

In ASEAN, small and medium-sized enterprises (SMEs) account for more than 90% of all
enterprises, employ 50-99% of the domestic workforce and contribute around 32-77% of total
domestic output in their respective countries. In the Philippines, the number of SMEs grew by
66% from 492,510 in 1995 to 816,759 in 2011. Similarly, the numbers of those employed by
these firms have grown by 45.7% from 2.7 million in 1995 to 3.9 million in 2011.
Sonny Boy A. Sajonia ABM-12

2016 MSME STATISTICS 

NUMBER OF ESTABLISHMENTS

The 2016 List of Establishments of the Philippine Statistics Authority (PSA) recorded a total of
915,726 business enterprises operating in the Philippines. This was 1.64% more than the 900,914
business establishments reported in 2015. Micro, small and medium enterprises (MSMEs)
account for 99.57% (911,768) of the total establishments, of which 89.63% (820,795) were
microenterprises, 9.50% (86,955) were small enterprises, and 0.44% (4,018) were medium
enterprises. Large enterprises made up the remaining 0.43% (3,958). 

SECTORAL DISTRIBUTION

The top five (5) industries in terms of the number of MSMEs in 2016 were: (1) Wholesale and
Retail Trade; Repair of Motor Vehicles and Motorcycles with 420,638 establishments; (2)
Accommodation and Food Service Activities with 119,718; (3) Manufacturing with 115,748
establishments; (4) Other Service Activities with 56,466 establishments; and (5) Financial and
Insurance Activities with 39,925 establishments. These industries accounted for about 82.5% of
the total number of MSME establishments.

GEOGRAPHICAL SPREAD OF MSMES

Majority of the MSMEs in operation in 2015 can be found in the National Capital Region
(NCR), with 190,166 business establishments; Region 4-A  (CALABARZON), 131,011; Region
3 (Central Luzon) with 100,880; Region 7 (Central Visayas) with  53,218; and Region 1 (Ilocos),
47,996. These top five (5) locations accounted for about 58.4% of the total number of MSME
establishments in the country.    

EMPLOYMENT 

MSMEs generated a total of 4,879,179 jobs in 2016 versus 2,831,729 for the large enterprises.
This indicates that MSMEs contributed almost 63.3% of the total jobs generated by all types of
business establishments that year. Of these, 30.4% or 2,345,992 jobs were generated by micro
enterprises; 25.7% or 1,981,316 by small enterprises; and 7.2% or 551,871 by medium
enterprises. 

SALES AND CENSUS VALUE-ADDED 

In terms of value-added, the MSME sector contributed 35.7%1 of the total with manufacturing
contributing the largest share of 6.87%. Wholesale and retail trade and repair contributed 6.58%
followed by financial intermediation with a share of 6%.

Within the sector, small enterprises accounted for the largest share of 20.5%. Medium enterprises
followed with a share of 10.3% while micro enterprises registered a share of 4.9%. Among small
enterprises, wholesale and retail trade and repair contributed with the most with a share of 4.07%
Sonny Boy A. Sajonia ABM-12

followed by manufacturing with a share of 3.82% while financial intermediation was next with a
share of 3.35%.

For medium enterprises, manufacturing accounted for the biggest share of 2.77% followed by
electricity, gas, and water with a share of 1.92% and financial intermediation with 1.87%. For
micro enterprises, wholesale and retail trade and repair represented the largest contribution of
1.73%.

EXPORTS CONTRIBUTION OF MSMES

MSMEs account for 25% of the country’s total exports revenue. It is also estimated that 60% of
all exporters in the country belong to the MSME category. MSMEs are able to contribute in
exports through subcontracting arrangement with large firms, or as suppliers to exporting
companies.