Feature: IFC investment in Ayala Corp’s US$100m social bond leads the way for healthcare in the Philippines

Ayala Corp, one of the largest conglomerates in the Philippines, is raising US$100m from a 10-year floating-rate social bond sold to IFC as the sole investor. The deal, the first social bond to be issued in the Philippines’ healthcare sector, opens the door for the country’s other corporates, including healthcare companies, to follow.

Ayala’s transaction, the first social bond launched in the Philippines from a non-financial issuer, will support the efforts of its healthcare subsidiary, AC Healthcare Holdings, in building an integrated health ecosystem designed to provide quality and affordable healthcare for Filipinos.

“This issuance will strengthen Ayala’s ESG financing capabilities and support growth for businesses that can make concrete social contribution, particularly in the healthcare industry,” said Alberto de Larrazabal, Ayala’s CFO and Chief Sustainability Officer.

Ayala’s strategy is focused on building out retail pharmacy, pharmaceutical importation and distribution, primary care and multispecialty clinics, tertiary hospitals, and health technology platforms. Healthcare in the Philippines, as with other developing economies, suffers from under-provision.

“Ayala health primary care clinics and retail pharmacies operate within and outside Metro Manila and cater for broad base of the population to provide affordable healthcare. Majority of the revenue at their retail pharmacies are from the sale of generic drugs which provides more than 85% savings to consumers compared to buying branded medications. The primary care clinics are set up with basic, but essential infrastructure to provide cost-effective quality care for the patients. Focus on quality and affordable healthcare for a broad base of the population, which is underserved, making hospital affordable and accessible, has been the driving force,” said Rana Karadsheh-Haddad, Regional Industry Director, Manufacturing, Agribusiness and Services, Asia and the Pacific at IFC.

“One of the things we’ve noticed is that the availability of specialty care is deficient – not just in the Philippines, but across Asia and Southeast Asia,” she said. “Ayala recognised this gap and wanted to do something about it. They decided to focus on oncology.”

Proceeds of the bond, issued by AYC Finance, a foreign subsidiary of Ayala Corp, will mainly be used to refinance the development of a dedicated cancer centre in Metro Manila, the first of its type in the Philippines.

“The decision to start with something relatively small – it’s going to start off with 100 beds. Get it up and running, get a model in place to find something that works operationally, financially, and structurally with the view that they will subsequently replicate the model and scale up which will further bring costs down and improve the accessibility,” said Karadsheh.

Social ties

IFC’s investment marks a major step in the development of a social bond market in the Philippines. Social bonds tie the use of proceeds to projects that aim to achieve positive social outcomes in everything from health and education to gender, affordable housing, and food security, offering an avenue for investors to generate returns while supporting the alleviation of social issues.

“I think Ayala deliberately chose to issue a social bond because the use of proceeds are aligned with social indicators as per the Sustainable Development Goals – like the number of patients in certain clinics, the number of patients in certain hospitals, individuals attaining vaccine tests, and the percentage of beds allocated to low income population,” said Karadsheh.

Financial institutions in the Philippines have already issued social bonds but this deal represents the first corporate borrower to come to market. Financial institutions usually lead the way in developing new financing opportunities such as social bonds but, as the market evolves, more real sector clients follow.

“I think the deal is really notable because it’s an asset owner demonstrating its commitment, putting together a framework and saying ‘I will be accountable for this’,” said Karadsheh. “We can help because we have sector expertise. We’ve helped clients put together frameworks in the past and it’s great to be working with Ayala because they’re a leading player in the Philippines. They’re a natural partner for us in launching this first deal.”

The borrower worked with IFC and second party opinion provider, Sustainalytics, to establish its social framework, against which the bond was launched. With an internal framework in place, it will make subsequent issues easier to replicate.

“Our investment in this social bond from our long-standing client will help strengthen the Philippines’ healthcare system at a crucial time while also helping to develop the market for social bonds,” said Karadsheh.

Green guides

IFC is no stranger in facilitating the development of new sectors of the market. It played a similar role in promoting the Philippines’ green bonds after subscribing to the first two local issuances, helping to create a new asset class that is now being adopted by companies across sectors.

“When borrowers go through these deals they want us involved in the first issuance,” said Karadsheh. “Once they’ve done it once then they’ll go to the public market. It really opens up the avenue for them to do much more.”

Green bonds have been around for almost 25 years, so they are well known by issuers and investors alike, but social bonds are relatively new in comparison and are not as widely understood or accepted. Understanding the impact of green bonds is straightforward in that proceeds are used for a specific measurable purpose – reducing carbon dioxide emissions. With social bonds, the desired outcome is more nuanced.

“It’s difficult for investors to get their mind around what is a ‘meaningful’ social impact,” said Serra Ekinci, Senior Investment Officer, IFC in Manila. “Green is really established in Europe and Asia and the concept is more easily understood. While green remains the dominant theme, the exceptional situation around the world has made the market become more aware of the importance of including social aspects in corporate/investment strategies and accordingly, recent growth of social bonds around the world has been impressive. So, this deal is an important introduction as the first social bond earmarked for healthcare-related purposes in the Philippines. Once top corporates like Ayala embrace social bonds, other deals and issuers are likely to follow. It’s just simpler to do it with our support first.”