PH sells P12B panda bonds amid strong demand

The Philippines has sold 1.46 billion renminbi or almost P12 billion in three-year panda bonds amid strong demand, although at a higher yield than the prevailing market rate in China.

From Beijing, National Treasurer Rosalia V. de Leon said late Tuesday that the country’s first panda bond issuance generated 9.22 billion renminbi in bids or 6.32 times bigger than the approved issue size.

Quoting a report from de Leon, Finance Secretary Carlos G. Dominguez III told reporters in a text message Tuesday night that “the achieved coverage ratio is the largest all-time among any sovereign panda issuance.”

“With substantial demand, we were able to push coupon to lower end of price target of 5-5.6 percent,” Dominguez added.

The coupon rate was nonetheless 35 basis points above the benchmark of 4.65 percent.

In a statement also late Tuesday, the government’s Investor Relations Office (IRO) noted a “tight spread,” even as it said that “relative to the government’s usual global dollar issuance, the renminbi-denominated panda bond’s 5-percent coupon would have an indicative dollar swap equivalent rate of 2.93 percent, 23 bps below current three-year dollar yield of 3.16 percent.”

As such, the Philippines was not only the first Asean country to sell the renminbi-denominated IOUs, but also “was able to diversify its investor base with participation originating from both onshore and offshore investors,” the IRO said.

“With the bond connect scheme, offshore investors comprised 87.7 percent of allocation, representing the highest offshore mix for any panda issuer,” the IRO added.

“The Philippine government’s successful inaugural issuance of panda bonds highlights the investor confidence that the country enjoys on the back of its strong credit profile,” the IRO quoted Dominguez as saying.

“The Duterte administration is committed to sustaining the growth momentum and making the economy a more inclusive one by way of massive investments in infrastructure and human capital development. It intends to pursue this unprecedented level of public spending while maintaining sound economic policies and observing fiscal discipline,” the Finance chief said.

“This is also one of the concrete results of President Duterte’s independent foreign policy,” Dominguez added.

The successful issuance was a result of “good timing and teamwork with the Bank of China,” which served as the lead underwriter for the transaction, he said.

Settlement of the bonds maturing in 2021 will be on Friday.

Budget Secretary Benjamin E. Diokno told reporters in a press conference Wednesday that since the funds from the proceeds of the panda bond sale were fungible, “we can use it to fund any of the projects that are in the general appropriations act right now.”

Earlier, the IRO said the panda bonds’ renminbi proceeds would be deposited with the Bangko Sentral ng Pilipinas then converted into peso “to help fund government infrastructure projects and other financing requirements.”

The Duterte administration is embarking on the ambitious “Build, Build, Build” program aimed at ushering in the “golden age of infrastructure” in the country.

Under “Build, Build, Build,” the government plans to roll out 75 flagship, “game-changing” projects, with about half targeted to be finished within President Duterte’s term, alongside spending a total of over P8 trillion on hard and modern infrastructure until 2022.

The government was also eyeing to further jack up next year’s national budget, estimated by Diokno at a record-high P4 trillion, of which about P3.4 trillion will be cash.