Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

 

Bulls of 1929 like their 1990s counterparts had their eyes glued on improving profits and stock valuations.  Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings-Dr. Kurt Richebacher 

In this issue:

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

I. An Extension of 2024's Fiscal-Monetary Interplay

II. Debt-Led Growth: Fragile Foundations

III. Revenue Growth: Record Highs, Diminishing Returns

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

V. Net Income Surge: A Paradox of Profitability

VI. Sectoral Performance: Diverging Trends

VII. Top Movers: Individual Firm Highlights

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage

IX. Transparency and Accuracy Concerns

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

Debt-fueled profits mask deeper signs of strain across retail, real estate, and consumer sectors—even as policy easing and fiscal expansion continue.

I. An Extension of 2024's Fiscal-Monetary Interplay 

The PSEi 30’s Q1 2025 performance is largely a continuation of the trends established throughout 2024 and the past decade. 

Fundamentally, it reflects the model of "trickle-down" economic development, underpinned by Keynesian debt-financed spending. This model is anchored primarily on the BSP’s policy of "financial repression"—or sustained easy money—combined with fiscal stabilizers. It has manifested through the persistent "twin deficits," driven by a record-high "savings-investment gap," and rests on the “build and they will come” dogma. 

Q1 2025 also marks the initial impact of the BSP’s first phase of monetary easing, with Q2 expected to reflect the effects of the second round of policy rate and reserve requirement (RRR) cuts. 

At the same time, the all-time high Q1 fiscal deficit—relative to previous first quarters—was clearly reflected in the PSEi 30’s performance. 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on current index members; may include revisions to past data

1B: Historical comparison; includes only members present during each respective period; based on unaudited releases

 II. Debt-Led Growth: Fragile Foundations

Figure 1

In Q1 2025, non-financial debt among PSEi 30 firms surged by 7.6% to a record Php 5.87 trillion, with a net increase of Php 413 billion, marking the third-highest quarterly rise since 2020. (Figure 1, upper window)         

In context, this debt level accounted for about 17.12% of total financial resources (bank and financial assets), up from 16.92% in 2024, reflecting increased leverage in the financial system 

In addition, bills payable for the top three PSEi 30 banks soared by 117.5%, rising from Php 393 billion to Php 854 billion, a net increase of Php 461 billion, excluding bonds payable. 

This dramatic increase in the bank’s short-term borrowing likely stems from a sharp decline in the banking system’s liquidity metrics—specifically, the cash and due-from-banks-to-deposits ratio and the liquid assets-to-deposits ratio. 

III. Revenue Growth: Record Highs, Diminishing Returns 

Gross revenues for the PSEi 30 rose by 3.92% to a record Php 1.78 trillion in Q1 2025. However, the net revenue increase of Php 67 billion was the smallest in the past four years, signaling a clear deceleration in growth momentum. (Figure 1, lower image)

Figure 2

This revenue softness partly reflected disinflationary trends, as the Consumer Price Index (CPI) fell to 2.3%—marking its third consecutive quarterly decline. (Figure 2, topmost chart) 

This occurred despite the economy operating near full employment, with the average unemployment rate at 4%, all-time high Q1 fiscal deficit, and amid record levels of bank credit growth, particularly in consumer lending. (Figure 2, middle graph) 

Nonetheless, the validity of the near-full employment narrative appears questionable. Our estimates suggest that approximately 32% of the workforce remains 'functionally illiterate,' raising concerns about the accuracy of PSA labor market data. 

Yet, the paradox is telling: even with aggressive fiscal stimulus and sustained easy money policies, economic returns appear to be diminishing. 

The PSEi 30’s revenue slowdown closely mirrored real GDP growth of 5.4% in Q1 2025, reinforcing the broader downtrend. (Figure 2, lowest diagram) 

Nevertheless, the PSEi 30 revenues accounted for 27% of nominal GDP in Q1 2025, underscoring their substantial footprint in the Philippine economy. Broadening the scope of PSE-listed firms in national accounts would likely magnify this contribution—while simultaneously highlighting the risks posed by mounting economic and market concentration and the fragile underpinnings of "trickle-down" economic development. 

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

Figure 3

Consumer sector stress was evident in the performance of PSE-listed firms. While retail nominal GDP grew by 7.9% and real consumer GDP by 4.9%, Q1 2025 sales revenue growth for the six largest non-construction listed retail chains—SM Retail, Puregold, SSI Group, Robinsons Retail, Philippine Seven, and Metro Retail Group—slowed to 6.8%, down from 8% in Q4 2024. This deceleration occurred despite aggressive supply-side expansion, underscoring deteriorating growth dynamics. (Figure 3, upper pane) 

Since peaking in 2022, both statistical (GDP) and real indicators (sales) have undergone significant depreciation. Downstream real estate consumer publicly listed retail chains, Wilcon Depot (WLCON) and AllHome (HOME), continue to grapple with substantial challenges, as rising vacancies further deepen the ongoing sales recession. (Figure 3, lower image) 

For example, WLCON reported a 2% quarter-on-quarter increase in store count, but only a 1.2% increase in sales YoY—highlighting excess capacity amid softening demand.

Figure 4

The food services sector also showed signs of strain, despite posting 10.3% revenue growth in Q1 2025—outpacing both nominal and real GDP. (Figure 4, topmost visual) 

Jollibee’s domestic operations, which accounted for 80% of total group sales, led the sector with a 14% gain. 

In contrast, McDonald’s reported an 11.5% sales contraction despite its 'aggressive store expansion' strategy, which includes plans to open 65 new outlets in 2025. This disparity underscores uneven, yet broadly weakening, performance across major retail chains. (Figure 4, middle chart) 

Even electricity consumption has recently deteriorated. Meralco’s electricity consumption growth slowed to 1.5% (in GWh), diverging from historical GDP correlations. This downturn signals weakening underlying demand, despite near-full employment and record-high bank credit expansion. (Figure 4, lowest graph) 

V. Net Income Surge: A Paradox of Profitability

Figure 5

Despite revenue challenges, the PSEi 30’s net income amazingly surged by 16.02% to a record Php 290.6 billion in Q1 2025, with an absolute increase of Php 40.12 billion, the second-highest since 2020. (Figure 5, topmost diagram)

This was driven by a significant increase in net income margin, which reached 16.3%, the highest since 2020, possibly due to asset sales (e.g., SMC’s divestitures). (Figure 5, middle window)

Excluding SMC’s asset sales, PSEi 30’s net income would have stood at Php 269.3 billion—reflecting only a 7.6% increase. This equates to a net profit rise of Php 19.12 billion, rather than the reported Php 40.12 billion

The record Q1 fiscal deficit likely bolstered incomes, both directly through government contracts (e.g., infrastructure projects) and indirectly via increased consumer spending. However, this came at the cost of record public debt and systemic leverage, which reached Php 30.7 trillion. Public debt hit an all-time high of Php 16.683 trillion. (Figure 5, lowest image)

The PSEi 30’s debt-to-net income ratio revealed that Php 1.42 in net debt additions was required for every peso of profit generated. In terms of absolute gains, Php 10.3 in new debt supported each peso of profit increase, highlighting deepening debt dependency.

 

Figure 6 

Paradoxically, despite record borrowing and improved net income, net cash reserves fell to 2022 levels, raising more concerns about systemic liquidity. (Figure 6, upper chart)

VI. Sectoral Performance: Diverging Trends 

By sector:  (Figure 6, lower table) 

Debt: The industrial sector recorded the largest percentage increase at 48.9%, but holding companies led in absolute peso gains Php 165.644 billon, followed by industrials Php 151.4 billion. 

Revenues: Banks achieved the highest percentage revenue growth at 9.8%, but industrials led in nominal terms with Php 17 billion in gains. 

Net Income: Holding and property sectors posted the largest percentage increases at 31% and 7.6%, respectively, with holding firms leading in peso terms Php 33.8 billion. 

Cash: The services sector saw the largest increases in both percentage (30.9%) and peso terms (Php 56 billion). 

VII. Top Movers: Individual Firm Highlights

Figure 7

By firm: (Figure 7, upper table) 

Debt: Ayala Corp, San Miguel Corporation (SMC), and Aboitiz Equity Ventures (AEV) recorded the largest peso increases at Php 74 billion, Php 70 billion, and Php 62 billion, respectively. LT Group (LTG) showed a substantial reduction of Php 24 billion. 

Interestingly, SMC reported a reduction in total debt—from Q4 2024’s record Php 1.56 TRILLION to Php 1.511 TRILLION in Q1 2025—despite substantial capital and operating requirements. This decline coincided with a surge in income, primarily driven by Php 21 billion in energy asset sales (San Miguel Global Power Holding LNG Batangas facility). Even excluding one-off gains, core profits rose by 31% to Php 19 billion. The company also strengthened its cash position, with cash reserves increasing by Php 57 billion year-on-year. How did this happen? (Figure 7, lower graph) 

Revenue: GT Capital (GTCAP) and Meralco posted the largest revenue increases at Php 15.6 billion and Php 9 billion, while SMC recorded the largest decrease at Php 31.8 billion. 

Net Income: SMC led with a Php 34 billion increase, driven by asset sales, while JG Summit (JGS) reported the largest decline at Php 7.2 billion. 

Cash: ICTSI and SMC posted the largest cash expansions at Php 79.9 billion and Php 57.6billion, while LTG (due to debt repayment) and AEV had the largest reductions at Php 38.2 and 15.015 billion 

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage 

Consider the potential impact on the PSEi 30, the broader PSE, and GDP when: 

-Bond vigilantes demand fiscal prudence, pushing interest rates higher

-Heavily leveraged consumer adopt austerity measures.

-Malinvestments from "build and they will come" industries, such as over saturation in real estate (26% residential condominium and office condominium vacancy rates and 22% per Colliers Philippines), and trade sectors, could lead to rising unemployment. 

These risks, compounded by diminishing stimulus effectiveness, threaten the sustainability of PSEi 30 performance and GDP growth. 

For instance, SMC’s business model has become increasingly reliant on recycling its borrowings or asset sales, making it wholly dependent on the sustainability of cheap money to refinance its rapidly growing debt. Neo-Keynesian economist Hyman Minsky famously characterized this as 'Ponzi finance.' (Minsky,1992) 

In essence, the structural risks are real—and growing more visible in each earnings season. 

IX. Transparency and Accuracy Concerns 

As previously stated: 

"The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms." (Prudent Investor, May 2025) 

These concerns underscore persistent governance challenges—particularly if elite-owned firms are engaged in systematically underreporting liabilities and overstating revenues or profits. Such practices not only contribute to the distortion of market signals but also foster moral hazard, eventually eroding investor confidence and undermining regulatory integrity. 

___ 

References 

Hyman P. Minsky, The Financial Instability Hypothesis* The Jerome Levy Economics Institute of Bard College May 1992 

Prudent Investor, The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts, Substack May 25, 2025

 

 

Is San Miguel’s Ever-Growing Debt the "Sword of Damocles" Hanging over the Philippine Economy and the PSE?

 

Every Ponzi is sold as a non-zero sum store of value. Every Ponzi investor believes the investment is a non-zero sum store of value—Nassim Nicolas Taleb

Is San Miguel’s Ever-Growing Debt the "Sword of Damocles" Hanging over the Philippine Economy and the PSE? 

San Miguel’s Q3 and nine-month sales performance validated the signs of a weakening economy. However, while the company reduced its debt from Php 1.484 trillion to Php 1.477 trillion, its practices exhibit symptoms of Minsky’s Ponzi finance.

I. San Miguel’s Slowing Sales Resonated with the Economy 

San Miguel’s 9-month sales performance demonstrates the weakening of the Philippine economy which was not limited to consumers.  

Given the current loose economic conditions, supported by the first BSP rate cut and the "Marcos-nomics" stimulus, it is surprising to see a contraction in cement and real estate revenues, as well as a downturn in infrastructure sales growth. For a company that has shifted its business model to rely heavily on political projects or enterprises, this downturn should be a cause for concern. 

Additionally, the consumer spending slowdown was pronounced in the context of declining food and packaging sales—which eked out marginal growth. 

SMC reported a Q3 revenue increase of only 3.9%—which would be flat once adjusted for inflation! 

Q3 sales pulled down the 9-month revenue growth, which clocked in at 11.2%.

In any case, despite a slight drop in margins, SMC reported income growth of 18.9%, amounting to Php 37.1 billion.

Despite this income growth, SMC’s outstanding debt fell only by Php 7.43 billion to Php 1.477 trillion from its 1H historic high of Php 1.485 trillion. 

II. San Miguel’s Incredible Short-term Debt Recycling, Deeper Signs of Ponzi Financing? 

However, this situation appears to be a result of smoke and mirrors, as the heavily leveraged holding firm raised approximately Php 71.4 billion through various preferred share issuances by its subsidiaries to bridge its financing gap. 

The issuance of preferred shares has potential impacts on common shareholders. Preferred shares typically have priority over common shares in receiving dividends and claims to assets. As a result, common shareholders may see reduced dividends, as preferred shareholders must be paid first. In the event of liquidation, preferred shareholders also have a higher claim on assets. 

A closer look at their cash flow statement reveals a striking example of debt recycling, reminiscent of Hyman Minsky’s "Ponzi finance." 

SMC borrowed an additional Php 110 billion in short-term debt, bringing the total to Php 933.794 billion, to pay off a rising Php 898.657 billion in loans. 

Professor Minsky described this as "Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts" (Hyman Minsky, 1992) 

Incredible! 

SMC’s Q3 interest payments rose by 10% to Php 25.05 billion, marking its second-highest level.

Although SMC reported a 6% increase in cash, amounting to Php 15.9 billion and totaling Php 281.2 billion, this figure remains significantly lower than its short-term liabilities of Php 383 billion, which raises the firm’s liquidity risks. 

III. Is SMC’s Debt the "Sword of Damocles" Hanging over the Philippine Economy and the PSE? 

To put this in perspective, SMC’s 9-month 2024 Php 1.477 trillion debt is equivalent to 6.6% of the estimated 2024 GDP and 4.5% of total financial resources (Q3). 

It is a telltale sign of the expanding concentration risk in the economy, or the 'too big to fail' phenomenon. What could go wrong? 

Its opportunity costs translate into either productive lending to the broader economy or financing competitiveness among SMEs. 

This also means that even at zero interest rates, the mounting scale of Ponzi finance or debt recycling is virtually unsustainable. 

It would likewise be a blatant mistake to assume that "what happens in SMC stays in SMC." 

As a counterparty to lenders, a liquidity crunch or potential insolvency won’t just affect the health of the banking system, the fixed-income market, or, indirectly, the Treasury markets—it could have broader economic and political repercussions. 

A liquidity squeeze could affect both direct and indirect industry and consumer linkages to SMC’s businesses.

Moreover, a political decision to bail out SMC would likely fuel inflation, which would come at the expense of the Philippine peso.

Sadly, could SMC represent the proverbial "Damocles' Sword" hanging over the Philippine economy, the financial system, and the Philippine Stock Exchange?

Interestingly, SMC share prices appear to have recently behaved like a pegged currency, with entity/ies defending the lower band (price floor) during the 5-minute pre-close period for several days, maintaining the Php 88 level (as of November 29) Previously, the lower band was at around Php 88.7.

___

reference  

Hyman P. Minsky The Financial Instability Hypothesis The Jerome Levy Economics Institute of Bard College May 1992

 

Escalating Systemic Risk: As Cash Reserves Plummeted, San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION!

 

In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could― Rudiger Dornbusch 

In this issue 

 

Escalating Systemic Risk: As Cash Reserves Plummeted, San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION! 

I. The Public’s Blind Spot: San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION!  

II. San Miguel’s Worsening Liquidity Crunch! 

III. SMC’s Debt-in, Debt-out Dynamics: Mounting Signs of Hyman Minsky’s Ponzi Finance Dynamic in Motion 

IV. SMC’s Escalating Fragility: Intensifying Concentration and Counterparty Risks 

 

Escalating Systemic Risk: As Cash Reserves Plummeted, San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION! 

 

The public seems unaware that the published debt of one of the Philippines' largest listed firms, San Miguel, has skyrocketed into the stratosphere! Why this represents a systemic risk.

 

I. The Public’s Blind Spot: San Miguel’s 9M Debt Zoomed to an Astonishing Php 1.405 TRILLION!

Figure 1 

It was a surprise that this tweet on San Miguel's [PSE: SMC] debt had an explosive reach, interactions, and responses, given my tiny X (formerly Twitter) account (few followers).  

 

Except for comparing its nominal growth with SMC's free float market capitalization and my conclusion, "This won't end well," the tweet was mainly about facts and barely an analysis.   The Fintweet world seems astounded by the "new" information.   If my conjectures are accurate, this only exposed the public's blind spots on the escalating systemic fragilities.    

 

Why has the public been sucker punched?

 

SMC has openly published their debt conditions not only in their 17Q and 17As but, more importantly, in their "analyst briefing presentations."  

Yet, there have been barely any mentions of these in social media or discussions of the consensus experts.   Mainstream news has signified an echo chamber of corporate press releases fixating on the top and bottom lines (in percentages).   

 

Other than these, a deafening silence. Possible reasons: Selective attention? The Principal-Agent Problem? Shaping the Overton Window? 

 

II. San Miguel’s Worsening Liquidity Crunch! 

 

San Miguel reported a Php 31.187 billion net income in the three quarters of 2023.  That's 141% or Php 18.242 billion improvement from a year ago.   

 

Compared to the PSEi 30 peers, SMC generated the most income in % and pesos in Q3 2023, resulting in the second-best income growth in the last three quarters after JGS.  

Figure 2 

Interestingly, despite the so-called profit boom, SMC borrowed a whopping Php 68.2 billion in Q3 to send its debt level to a mind-boggling Php 1.405 TRILLION!  T-R-I-L-L-I-O-N!  (Figure 1, upper window) Of course, this hasn't been a strange dynamic to us. 

 

SMC has increased the pace of its quarterly borrowing growth in pesos.  It has borrowed over Php 50 billion in the last 5 of the six quarters!  

 

And yes, the 9M aggregate debt growth of Php 153.02 billion represents around 62% of SMC's free market float as of November 17th. 

 

Strikingly, Q3 borrowing exceeded the firm's 9M GROSS profits of Php 62.875 billion!  

 

And despite the profits and the borrowing, SMC's cash reserves plummeted by 18.7% or by Php 60.984 billion! 

 

As a result, current liabilities of Php 450 billion soared past cash reserves of Php 265 billion, which extrapolates to the widest deficit (Php 184.9 billion) ever!  (Figure 1, lower graph)

 

In short, like Metro Pacific, underneath the consensus talking points, SMC has been plagued by a developing liquidity crunch.   

 

III. SMC’s Debt-in, Debt-out Dynamics: Mounting Signs of Hyman Minsky’s Ponzi Finance Dynamic in Motion 

Figure 3 

 

SMC's interest expenses have recently soared, even as it dipped in Q3. 

 

Its quarterly share of gross margins has been on an uptrend since 2016. (Figure 3, topmost pane)

  

To be sure, BSP's recent rate hikes have worsened SMC's onus exhibited by the rising interest expense.  

 

But it isn't interest rates alone.  Rising debt levels are the biggest contributor to SMC's mounting debt burden. (Figure 3, middle and lower charts)

Figure 4 

 

SMC's FX exposure represents about half of its debt liabilities. (Figure 4, upper chart)

 

From SMC's Q3 17Q: "The increase in interest expense and other financing charges was mainly due to higher average loan balance of SMC and Petron coupled with higher interest rates."  

 

Though the net income (before interest and tax) bounce has lifted SMC's Interest Coverage Ratio (ICR) above the 1.5% threshold, the above numbers show why "EBIT" could be erroneous, and thus, the dubiety of the higher ICR. (Figure 4, lower graph)

 

Remember, Php 450 billion of 9M SMC's debt is due for payment within a year (current), while "net cash flows provided by operating activities accounted" for Php 142.450 billion during this "profit boom."  Aside from the current borrowing to bridge the current gap, if cash flows sink further, wouldn't this require even more borrowing? 

 

To be more precise, to survive, SMC requires continuous borrowings to fund this ever-widening gap, or it may eventually be required to sell its assets soon!  

 

And this dynamic, as we have repeatedly been pointing out, represents Hyman Minsky's "Ponzi finance." 

 

For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts. (Minsky, 1992) 

 

That is to say, the prospect of the BSP's lowering of interest rates will do little to ease or mitigate SMC's intensifying cash-flow stream predicament.  

 

IV. SMC’s Escalating Fragility: Intensifying Concentration and Counterparty Risks

 

And that's not all. 

 

It's also about escalating CONCENTRATION and CONTAGION risks. 

 

SMC accounted for 24% and 25% of the PSEi 30's 9M and Q3 gross revenues, 19.3% of 9M cash reserve, and 26.8% gross debt.   

 

SMC's 9M net debt growth of Php 153.019 billion signified the dominant majority or 71.82% of the PSEi 30's Php 213.07 trillion net debt growth!  Amazing.  

 

Figure 5

Here’s the kicker: SMC's Php 1.405 TRILLION debt represents a stunning 4.71% share of the BSP's Total Financial Resources at Php 29.855 trillion—which is at an ALL-TIME HIGH! (Figure 5)

 

Expressly, aside from the government, the financial system has vastly increased its exposure to SMC, which comes at the expense of more productive firms and which translates to savings/capital consumption. 

 

And the financial system's record exposure to SMC also raises systemic fragility.  That is to say, it is not only a problem of SMC but also a COUNTERPARTY risk.   

 

So, in addition to the expanded risks to SMC’s equity and bondholders, as Hyman Minsky theorized, other creditors, suppliers, employees, and the daisy chain or lattice network of firms doing business with SMC (directly and indirectly) may suffer from a creditor's "sudden stop."  

 

That being said, the buildup of SMC’s risks represents a non-linear, non-proportional, and asymmetrical feedback loop.  

 

Aside from political entrepreneurship, the BSP's easy money regime has fostered and nurtured SMC's privileged financial status, which increasingly depended on the expansion and recycling of credit.  As such, SMC has transformed into a "too big to fail" firm.   

 

When crunch time arrives, will the BSP (and) or Bureau of Treasury bailout SMC?  Or, will these agencies finance a bailout of it by a consortium of firms? 

 

How will these impact the economy and the capital markets? 

Stay tuned. 

 

____ 

References 

 

San Miguel Corporation, SEC Form 17Q, Management Discussion and Analysis; Edge.PSE.com.ph, P.8, Table p.18; November 15, 2023 

 

Hyman P. Minsky The Financial Instability Hypothesis The Jerome Levy Economics Institute of Bard College May 1992