PH eyes foreign bond sale before yearend

THE GOVERNMENT is looking at selling bonds offshore earlier than usual to secure funding for next year’s expenditures, National Treasurer and Finance Undersecretary Roberto B. Tan said last week.

“We are hoping there is a window of opportunity” to issue bonds offshore before this year ends, Tan told reporters.

Tan said the timing will depend on market conditions.

“We want to do it, but not necessarily before yearend if the market is not good,” he said.

In the past few years, the Philippines had customarily tapped the offshore bond market early in the year.

For instance, the government sold $2 billion in 25-year bonds last January.

For 2016, the Bureau of the Treasury was eyeing to issue $750 million in sovereign bonds.

In case the government decides to borrow offshore before yearend, Tan pointed out that such an exercise will constitute prefunding for 2016 expenditures.

“If we complete this prefunding, there may not be funding operations anymore from foreign commercial sources next year,” he said.

Tan said the Treasury is still in consultation with banks and potential underwriters for the specifics of a possible offshore bond issuance, although he said that “the longer, the better” remains the preferred policy in terms of tenor.

In its yearend report on the 2014 national budget dated Oct. 31, the Cabinet-level, interagency Development Budget Coordination Committee (DBCC) said that “in line with its liability management goals, the national government will continue to source majority of its funding requirements from domestic lenders to help advance local capital market development as well as to reduce vulnerabilities to foreign exchange fluctuations.”

Still, “external borrowings will remain a significant funding source, as official development assistance (ODA) loans still offer lower borrowing costs, while global bond issuance provides investor base diversification,” the DBCC said.

For this year, the DBCC had programmed a borrowing mix of 75-percent domestic, 25-percent external, “as ample domestic liquidity will allow the government to source majority of its financing needs from the domestic market,” it earlier said.

“For the rest of 2015, the national government will borrow predominantly in local currency to meet its funding requirements, in line with the goal of reducing the country’s exposure to foreign currency volatility as well as the long term objective of developing the domestic capital market,” the DBCC had said in a separate report.

The national government plans to borrow less next year and slash the debt stock to a record-low of 41.8 percent of the economy from the projected 44.7 percent this year.

“Because of our fiscal consolidation efforts, we will need to borrow only P674.8 billion to finance the projected P308.7-billion deficit, to amortize P347.7 billion of our maturing outstanding debt, while maintaining sufficient available cash,” President Aquino’s budget message for fiscal year 2016 read.

Next year, domestic borrowing would comprise the bulk or 84.5 percent of the total. The government would source P570.2 billion from the auction of treasury bills and bonds in 2016.

The government would also borrow P104.6 billion from foreign sources—P54.1 billion in program loans, P17.1 billion in project loans, and P33.4 billion in bonds and other inflows.