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Biz Buzz: Treasury’s price of success

/ 01:09 AM April 17, 2017

One thing that’s clear with the current leadership of the Bureau of the Treasury is that it learns from its mistakes.

Why so?

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Well, the feedback from the banks about the Treasury’s most recent retail treasury bond (RTB) offer was that the activity was an overwhelming success. And that was a very different outcome from the first RTB issue made by the Duterte administration last year, which, though it brought in more that what was hoped for, was initially met with skepticism by banks and investors owing to the unattractive yields being offered.

Not this time. The RTB offer made by newly returned National Treasurer Rosalia de Leon brought in P175 billion in fresh funding for the government courtesy of creditors who were eager to throw their financial muscle behind the Duterte administration’s fiscal program.

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The Treasury had initially set a borrowing target of only P100 billion, but ended up borrowing a lot more, thanks to the more than P500 billion in tenders from banks and retail investors (one could lend money to the government—and receive attractive yields—for as low as P5,000).

And what was the secret to drawing in a lot of potential creditors? Well, it was simple really. This time, the Treasury did not scrimp on the interest rate it was willing to pay banks for their money.

Treasury sources told Biz Buzz that the banks were so impressed with the interest rate for the RTBs that some bankers could hardly believe it.

“It was very successful,” said one banker whose institution bought as much as it was able to (and even wanted to buy more bonds). “The reason for that was simple: The yields were so good.”

How good? We’re told that the 4.25-percent yield for the 3-year security was at least 25 basis points higher than what the market was expecting. Now a quarter of a percentage point might not sound like a lot, but when one considers that the government borrowed P175 billion … that translated to an additional yield of P1.3 billion for the lenders over the life of the bonds.

Unfortunately, it also means taxpayers will spend P1.3 billion more in interest payments to banks and retail investors. But, what’s an additional P1.3 billion in additional costs (totaling about P22 billion for three years) to ensure the success of an issue … coming on the heels of a less widely appreciated one, right?

Let’s just hope that the Treasury maintains its winning ways going forward because there was one hiccup in the recent RTB exercise that had bankers raising their collective eyebrows.

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Biz Buzz was told that, unlike before where the process of awarding RTB allocations to interested banks was done transparently, none of the participants (apart from the top underwriters perhaps) were aware about the process of deciding which institution got how much of the highly coveted bonds.

“In the past, it was always pro-rated to how much a bank would tender,” another banker said. “But this time—for the first time ever—we don’t know how the Treasury decided on the allocations. There may have been a system or it may have been arbitrary. We simply don’t know.”

The bankers’ worry? A nontransparent system would allow the Treasury to reward friendly banks with more bond allocations, thus allowing that bank to earn more fees, and other financial institutions wouldn’t have the slightest clue that one of their peers was getting a leg up on them.

But hey, the Treasury seemed to learn from its previous RTB issue’s shortcomings. Maybe they will improve this latest one as well by implementing a more transparent allocation system in their next foray into the debt market. We’re keeping our fingers crossed. —DAXIM L. LUCAS

First mover advantage

Some of the country’s biggest conglomerates have cast their gaze toward Clark International Airport and a coveted “original proponent” status to develop and operate what remains Metro Manila’s closest alternative.

But could they have been beaten to the punch, by several years, in fact?

In an issue that has turned murky in recent months, it’s now emerging that a group had made an offer for Clark and bagged the project during the Arroyo administration.

We’re talking about the Philco Aero Group, led by businessman Ricardo Penson, who said they were awarded original proponent status for Clark. That status basically gives a company a huge advantage in the mandated competitive challenge for unsolicited deals. Since rival offers would be accepted, the original proponent has the right to simply match the better offer, in case one is made, and still win the auction.

In any case, we understand Philco Aero ran into disagreements with the Aquino administration, which basically attempted to cancel their project.

The company filed an appeal, which was then ignored (not an unusual event in any administration, it turns out).

But the point is, the issue remains hanging.

Penson told Biz Buzz that without a resolution, the government could not act on any Clark proposal.

Canceling the contract, he noted, would require costly reimbursement for years of keeping his company going, or worse, trigger time-consuming litigation.

He said their offer for Clark, at $177 million, was significantly more modest than others and with smaller traffic assumptions.

After all, the JG Summit-Filinvest duo offered $3.7 billion, while Megawide Construction and India’s GMR proposed $5 billion. Those two groups saw a much bigger opportunity for Clark.

Penson, who said he was persecuted by Mr. Aquino despite their close ties, nevertheless made it clear the contract should be honored.

In an environment where money and influence speak volumes, he is not without allies. Philco Aero, whose partners include Korea Airports, apparently has an old commitment to San Miguel Corp., which can take over the Clark project if it proceeds, Penson said.

Even better than old commitments are old friends. Penson went to San Beda College, where he befriended a senior law student who was sometimes mocked by classmates for his “bisaya” accent. He formed a close bond with that student, now known as President Duterte. They were also Bedans who joined activist group Kabataang Makabayan. Needless to say, he was an early supporter of candidate Duterte.

Such is the latest twist in our complex airport situation. But like we say here in Biz Buzz, abangan! —MIGUEL R. CAMUS

Razon Down Under

Ports and casino billionaire Enrique Razon Jr. is well known for his business prowess and vision, often embracing risk when others might play safe. That attitude appears to have reaped an early reward for his first port project in Australia.

Under Razon’s International Container Terminal Services Inc., the brand-new Victoria International Container Terminal (VICT) at Webb Dock East in the Port of Melbourne was named Smart Infrastructure Project of the year.

This was announced recently at Infrastructure Partnerships Australia-organized National Infrastructure Awards.

VICT topped rival projects “for the significance and role of automation at Australia’s largest container port, improving operational capacity and efficiency, as well as the port’s ability to service larger capacity vessels.”

It beat five other finalists, including Sydney Airport Integrated Operations Centre, The Mega Train Project in Newcastle, and UBERZones in Melbourne. —MIGUEL R. CAMUS

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TAGS: Bureau of the Treasury, Business, Clark International Airport, Enrique Razon Jr.
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