Barclays: PH upgrade came earlier than expected
More international investors are expected to be drawn to Philippine sovereign bonds once a second rating agency raises the country’s long-term foreign credit to investment grade, according to Barclays Bank.
In a research note, Barclays said that Fitch Ratings upgraded the Philippines’ credit standing much earlier than expected.
Barclays initially thought that the upgrade would take place in the second half of 2013.
But before the upgrade can make a real dent on Philippine government-issued dollar bonds, a similar move from either Standard & Poor’s Ratings Services (S&P) or Moody’s Investors Service is still needed, the bank said.
“Philippine (dollar-denominated) bonds (or ROPs) would become eligible for the Barclays Global Aggregate and Barclays US Aggregate indices only if the sovereign is rated investment grade by at least two of three major rating agencies,” Barclays said.
The bank is referring to the indices used in the trade of investment-grade bonds in the United States.
“However, our credit strategists think that an index-related bid is unlikely to be the key driver of tighter valuations because ROPs already trade tighter than peers in investment grade indices,” Barclays added.
The bank said domestic demand for these bonds would continue to be a key factor in the debt paper’s performance.
Even then, Barclays estimates demand for Philippine dollar bonds from passive buyers, or those who buy indexed bonds, to be at least $1.5 billion once the country receives a second investment-grade rating.
The Philippine government’s commercial borrowings for a full year usually amount to $1.5 billion, based on the financing programs of recent years.
For now, with only Fitch backing the country, Barclays expects Philippine bonds “to continue to trade as tight as Brazil’s and Mexico’s (both higher rated issuers).”
Also, Barclays said that Moody’s may give the Philippines another positive action once the agency sees further progress in the country’s effort to address “key weaknesses,” such as the passage and effective implementation of structural revenue reforms, a more rapid reduction in the government’s debt stock, and an acceleration of investment spending.