Treasury defends $500M bond sale at 4.2% rate

The national treasurer on Monday maintained that the government got a good deal out of its latest international bond sale, shrugging off criticism that the fund-raising activity was expensive.

The Philippine government last week sold $500 million worth of 10-year, dollar-denominated global bonds—on top of the $1 billion worth of bonds exchanged for previously issued ones—at a coupon rate of 4.2 percent.

National Treasurer Rosalia de Leon said that at this rate, the Philippines proved to be a darling of the offshore market as it enjoyed a tighter spread compared with Indonesia, which also sold debt paper in the international market last week, offering $2 billion worth of 10-year bonds and $2 billion worth of 30-year bonds. Indonesia’s 10-year bonds fetched a coupon rate of 5.95 percent, while its 30-year bonds got 6.85 percent.

Some local market players, however, still view the Philippine government’s latest bond sale as expensive. They said the government could have saved on interest payments had it sold the bonds in the domestic market.

Victor Abola, economist from the University of Asia and the Pacific and consultant for First Metro Investments Corp., said the government’s 10-year bonds could have been sold at a coupon rate of 3.2 percent had it been offered in the local rather than the international market.

Abola said there was no need for the government to sell bonds offshore especially with the huge liquidity in the domestic banking system.

De Leon, however, said a 3.2-percent coupon rate for a 10-year emerging-market debt paper was not possible. She noted that 10-year US treasuries were already trading close to 3 percent and that no emerging economy could get a 20-basis-point spread.

De Leon also said that the domestic market was not left out in the government’s latest bond sale. She said the debt paper was offered to investors in various locations across the globe, including the Philippines.

“We started with Asia, which covered the Philippines. Local banks were also invited to participate,” the national treasurer said.

She added that the coupon rate of 4.2 percent for the Philippine’s 10-year global bonds was lower than the government’s earlier estimate of 4.5 percent.

Proceeds of the bond sale helped fill the government’s total borrowing requirement for 2014 of P715 billion.

The Philippines global bond offering last week was its first since securing investment grade ratings last year.—Michelle V. Remo