PH takes high yield risks, offers ‘green’ bonds to foreign creditors

The Ayuntamiento de Manila which houses the Bureau of the Treasury (From the Facebook account of the bureau)

MANILA, Philippines—Despite higher yields sought by creditors here and abroad due to risks wrought by Russia’s invasion of Ukraine, the Philippines is offering its first-ever “green” bonds plus two tenors of US dollar-denominated sovereign debt securities.

As part of its initial foray into the offshore bond market in 2022, the Philippines will issue 25-year sustainability bonds. In the prospectus, the Philippines said proceeds from its maiden green bonds offerings will not only cover budget financing but also “finance/refinance assets in line with the republic’s sustainable finance framework.”

Launched last year, the Philippines’ sustainable finance framework was aimed at raising green, social or sustainability bonds and loans, among other debt instruments, in international capital markets to borrow funds for programs and projects geared at fighting climate change and promoting inclusive growth.

Finance Secretary Carlos Dominguez III earlier said the Philippines planned to offer at least $500 million in green bonds. The money to be raised from green bonds will fund the Philippines’ climate mitigation programs as rich nations have yet to fulfill their financing commitments to support developing countries in their clean energy transition under the Paris Agreement.

Besides the green bonds offering, the Philippines was also offering five- and 10.5-year global bonds to finance the national budget.

Initial yield guidance for these bonds were US Treasury bond yield + 125 basis points (bps) area for the five-year debt paper; T+165 bps for the 10.5-year IOUs; and 4.7-percent area for the green bonds.

For the three tenors, the offering will be “benchmark”-sized, or at least $500 million in market parlance. Officials on Monday declined to comment on the offer size and how much they targeted to raise from these debt securities.

The joint lead managers and joint book runners were Bank of China, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Mizuho Securities, Morgan Stanley, Standard Chartered Bank, and UBS.

These dollar bonds will be settled on March 29.

Locally, the Bureau of the Treasury on Monday raised P13.9 billion, a partial award of its P15-billion offering of short-dated T-bills, at rates that rose across-the-board.

National Treasurer Rosalia de Leon said treasury bill rates continued to move up on expectations that the US Federal Reserve’s 25-basis point (bp) rate hike last week will be followed by more increases to tame 40-year-high inflation in the US alongside quantitative tightening (QT) or liquidity reduction.

But De Leon said the likelihood that the Bangko Sentral ng Pilipinas (BSP) will keep the record-low 2-percent policy rate unchanged on Thursday, to support economic recovery, tempered the bid rates demanded by government securities eligible dealers (GSEDs).

The BTr awarded P4.87 billion of the P5 billion in the benchmark 91-day T-bills it offered, at an average rate of 1.536 percent, up from 1.305 percent last week.

The P5 billion in 182-day IOUs were all accepted at 1.607 percent, up from 1.458 percent previously.

On 364-day securities, the Treasury borrowed P4.03 billion at an annual rate of 1.792 percent, inching up from 1.734 percent during last week’s auction.

Monday’s fund-raising was oversubscribed, as domestic creditors tendered a total of P25.91 billion across the three T-bill tenors.

The government will borrow P2.2 trillion this year, of which three-fourths would be raised from the domestic debt market to take advantage of flushing liquidity in the financial system while tempering foreign exchange risks.

TSB