Gov’t to buy back $1.5B in bonds

The Bureau of Treasury said on Monday, October 10, 2011, that the government is considering to buy back some $1.5 billion of global bonds, preferably expensive debts or those with high yields and are more costly for the government.

The Aquino administration on Monday announced its intention to buy back some $1.5 billion in global bonds in an effort to retire “expensive” debts.

Finance officials said the target amount covered the purchase of outstanding bonds and payment of accrued interest, although the government might decide to spend more or less “at its sole discretion.”

“Select US dollar-denominated and euro-denominated bonds with an aggregate principal amount of approximately $17.5 billion are eligible for repurchase under the offer,” the statement said.

“The clearing price for each series will be determined pursuant to a modified Dutch auction,” it added.

This means the government is offering to purchase outstanding bonds at a specified range of yield, enabling bondholders to choose whether or not to sell. After receiving all the tendered bonds when the offer expires, the government then chooses the best yields that will allow it to purchase the amount it aims for.

When asked which bonds the government was considering to buy back, National Treasurer Roberto B. Tan said in an interview that these would be the expensive debts or those with high yields and were more costly for the government.

Finance Secretary Cesar V. Purisima said in a statement that the government was in a strong liquidity position and believed market conditions presented an opportunity to proactively manage its external indebtedness in a cost-effective manner.

“This is consistent with our objective to increase the local currency component of our indebtedness while extending maturities and reducing cost,” Purisima said.

Named as joint global coordinators for the buyback are Citigroup and JP Morgan while Citigroup, Goldman Sachs (Asia), HSBC, JP Morgan, Standard Chartered Bank and UBS are joint dealer managers.

In a related development, the Bureau of the Treasury raised P20 billion as planned in 10-year and 15-year retail bonds during a price-setting auction held on Monday.

The Treasury raised P10 billion each for the 10-year paper at a coupon of 5.75 percent and the 15-year paper at 6.25 percent.

Buyers offered P22.98 billion, or more than twice the offer for the 10-year retail bonds, and P47.98 billion, or almost five times the offer for the 15-year RTBs.

The RTBs, available in denominations of as small as P5,000, are being offered to retail investors until October 17.