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PH nears deal on ‘panda’ bonds

By: - Reporter / @bendeveraINQ
/ 06:00 AM November 18, 2017

National Treasurer Rosalia de Leon / INQUIRER FILE PHOTO

The Philippines’ first issuance of $200 million worth of renminbi-denominated panda bonds in China moved a step closer after the government signed the underwriting agreement with Bank of China.

Also, with the tax treatment on the transaction already clarified by the Bureau of Internal Revenue, the government is on track to launch it by Nov. 27, National Treasurer Rosalia V. de Leon told the Inquirer yesterday.

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Under Revenue Memorandum Circular No. 95-2017 issued by Internal Revenue Commissioner Caesar R. Dulay on Nov. 10, so-called repo transactions will be exempt from documentary stamp tax (DST). The lack of clarity on whether such deals would be slapped or exempted from DST had delayed the repo launch.

The BIR said the repo rate (the difference between the original price and the repurchase price) as well as other interest income including interest accruing from the cash margin would be slapped a 20-percent final final withholding tax as well as applicable gross receipts tax under the Tax Code.

“However, any mark-to-market gain or loss, and any other realized gain, arising from subsequent sale of repo securities within the repo period, shall be subject to 30-percent corporate income tax,” the BIR added.

The last approval being awaited to finally launch the repo is that from the Securities and Exchange Commission for an accredited self-regulatory organization, a private group that will oversee the repo rollout.

A repo, short for repurchase agreement, allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and an agreed price. Repos are said to provide lenders low risk and are usually used to raise short-term capital.

In August, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. said the government’s ambition was to see an active repo market by 2019.

The launch of the repo forms part of the reforms to be introduced to develop the domestic capital market in line with the government’s plan to finance the wider budget deficit equivalent to 3 percent of gross domestic product until 2022 through a borrowing mix mostly reliant on local sources, with an 80-percent share.

Meanwhile, the Department of Finance said in a statement yesterday that Finance Secretary Carlos G. Dominguez III recently signed the underwriting agreement on behalf of the Philippine government with Bank of China chair Chen Siqing at Malacañang Palace.

“As lead underwriter, the Bank of China has committed to form an underwriting team that will purchase the panda bonds that the Philippine government will issue, and then resell it to the Chinese market for a profit. The underwriting agreement states that the Bank of China will serve as the bookrunner of the panda bond issue,” the DOF said.

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Panda bonds are yuan-denominated debt paper issued in China by foreign governments or companies.

Dominguez had said the government planned to issue $200 million or about 1.4 billion renminbi in three- to five-year panda bonds before yearend.

The Monetary Board, the Bangko Sentral ng Pilipinas’ highest policymaking body, already approved in principle the planned panda bond issuance, while the Philippine government was in the process of also securing approvals from the People’s Bank of China (PBOC).

“The panda bond market is regulated by China’s central bank, the PBOC. As such, any potential issuer first applies through the PBOC prior to any other Chinese regulator. As of the moment, we are working with the Bank of China on the internal and external approval by the PBOC. The terms have to be discussed further,” Dominguez had said.

For her part, De Leon was quoted by the DOF as saying that “the panda bond issue will diversify our funding sources and provide benchmarks for other Philippine issuers in the onshore market, particularly at this time that the renminbi is a reserve currency.”

“The bond issue will also complement the financial support from China for the implementation of critical infrastructure projects,” De Leon said.

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