Government buys back $1.7B worth of dollar, euro bonds

Malacañang bought back last Friday some $1.7 billion in outstanding dollar- and euro-denominated global bonds in an effort to retire Philippine securities that carry relatively higher yields and are costlier for the government.

Finance officials said in a statement that the amount covered $1.3 billion in nominal principal as well as accrued interest.

The bond buy-back involved various debt papers that were supposed to mature between 2013 and 2032, with interest rates ranging from 6.25 percent to 10.625 percent.

Bondholders who responded to the government’s buyback offer accounted for a total of $2.2 billion worth of securities.

This represented 7.4 percent of the $17.5 billion worth of eligible state-issued Philippine global bonds, in nominal principal amount, that were outstanding as of the offer’s announcement on October 10.

The statement quoted National Treasurer Roberto B. Tan as saying that the government funded the repurchase mainly with internal funds.

“This exercise highlights the [Philippines’] strong liquidity and prudent debt management policy amid global volatility,” Tan said.

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

Finance Secretary Cesar V. Purisima said the buyback was also in line with the Aquino administration’s goal of rebalancing the government’s debt portfolio in favor of domestic borrowings.

“This should be supportive of our effort to obtain investment-grade ratings,” Purisima said.

Purisima last month said it was only fitting that Moody’s Investors Service as well as Standard & Poor’s followed the example of Fitch Ratings, which in June raised the Philippines’ rating to “BB+”—a step away from the level where a country’s capacity to pay its debts is perceived to be “adequate.”

Currently, Moody’s and S&P rate the country “BB” and “Ba2,” both indicating two notches below investment grade.

“I believe Moody’s and S&P are underrating the Philippines,” Purisima said. “We are certainly not two notches below investment grade. We are at the same level or even better than countries that are rated one notch below investment grade.”

Purisima said the government hoped to hit an investment-grade credit rating within the first half of the Aquino administration‘s term, if not sooner.