PH sells $2B IOUs at record low rate

National Treasurer Rosalia de Leon: Robust response INQUIRER FILE PHOTO

MANILA, Philippines–The government has successfully raised $2 billion from the sale of long-term bonds, snapped up by investors at a record low rate, as part of the state’s efforts to reprice and consolidate outstanding obligations.

The new Republic of the Philippines (ROP) bonds attracted about $13.5 billion in tenders at a coupon of 3.95 percent—the lowest ever on global 25-year IOUs issued by the Philippine government to date.

“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.

The initial pricing guidance for the US dollar-denominated debt paper was 4.2 percent.

A previous issuance of 25-year bonds by the Philippine government in 2012—before the country was rated at investment grade—was priced at 5 percent.

“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,” National Treasurer Rosalia de Leon said. She said orders reached $7.9 billion, or 15 times oversubscribed, while the liability management order book hit $6.1 billion in market value terms.

According to De Leon, the ROP issuance “attracted new name, investment grade-only investors.”

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.”

Moody’s Investor Service, the latest credit-rating firm to grant an upgrade for the Philippines, said the government’s decision to reprice obligations came at a good time.

“The decline in the Philippines’ debt burden coincided with improvements in fiscal management to support the country’s funding profile,” Moody’s said in a statement.

Administrative reforms in key revenue-collecting agencies have led to revenue growth faster than the expansion of the overall economy for a fourth consecutive year, Moody’s pointed out.

The Treasury, Moody’s said, has proactively addressed refinancing risks by lengthening the average maturity of its local currency debt to around 13 years, from about seven years as of end-2009. In addition, the Treasury has refinanced maturing debt at lower interest rates, thus enhancing debt affordability.

Of the proceeds of the global bond issuance, $500 million will fund the budget while the bigger chunk of $1.5 billion will 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 for previously issued IOUs maturing between 2016 and 2034.