MANILA, Philippines—The government has successfully borrowed offshore through the issuance of $2 billion worth of 25-year bonds to foreign investors at a record low rate.
The new Republic of the Philippines (ROP) bonds fetched about $13.5 billion in tenders at a coupon of 3.95 percent—the lowest ever on global IOUs issued by the Philippine government to date, the Investor Relations Office noted in a statement on Wednesday. The initial pricing guidance for the US-dollar-denominated debt paper was at 4.2 percent.
“We continue to pursue liability management transactions that provide opportunities to reduce high coupon debt while achieving interest expense savings, which the government can instead use for more inclusive initiatives,” said Finance Secretary Cesar V. Purisima.
National Treasurer Rosalia V. de Leon disclosed that the cash order book amounted to $7.9 billion or 15 times oversubscribed, while the liability management order book hit $6.1 billion in market value terms.
Of the tenders, 47 percent came from investors in the United States, 41 percent from Asia, and 12 percent from Europe.
In a separate statement, the Department of Finance (DOF) said this year’s offshore bond issuance “marked [the Philippine government’s] return to the international capital markets with a showing consistent with its now emergent sterling reputation.”
“It took courage and conviction to pursue a strategic transaction in the midst of global market volatility. Strong economic fundamentals and a track record of well-placed deals allowed the ROP to be the first issuer in the global dollar market and to execute a $2-billion 25-year bond at an all-time low coupon of 3.95 percent,” Purisima said, noting that during the previous 25-year ROP bond issuance made in 2012, the coupon was a higher 5 percent.
According to de Leon, the ROP issuance “attracted new name, investment grade-only investors.”
“This robust response from the international markets reflects that our manifest confidence in the strength of the Philippine economy and liability management strategy is very well-placed,” De Leon said.
Of the proceeds of this global bond issuance, $500 million will fund the budget, while the bigger chunk of $1.5 billion shall support the switching and retiring of old bonds.
The one-day accelerated switch tender offer conducted simultaneously with the new debt paper offering received offers totaling $4.4 billion, of which $1.5 billion were accepted by the Philippine government.
The debt swap arrangement allowed investors to buy new bonds in exchange of 15 previously issued IOUs maturing between 2016 and 2034.
“Despite the volatility we have seen at the start of the year, we continue to see strong support by investors in our bond program, which enabled the [ROP] to achieve a stronger fiscal position for the Philippines. The series of liability management programs has significantly reduced debt repayment risks,” de Leon said.
Separately, Budget Secretary Florencio B. Abad said that the $500 million in new money “will give the National Government enough fiscal space to address its budgetary requirements for the coming year.”
“[W]e will be able to devote funds that would have gone to debt principal and interest payments to urgent priority projects and programs instead,” Abad added.