PH launches domestic debt swap

The government on Wednesday launched a domestic debt swap to inject more liquidity into the market amid external volatility.

Bondholders of certain eligible government securities can swap their bonds for new benchmark bonds due 2025 and 2040, for which the government had set a minimum issue of P50 billion each.

The government can accept a maximum of P300 billion worth of bonds to exchange.

The new 10-year bonds have a minimum coupon rate of 3.625 percent, while that of the 25-year bonds is 4.625 percent.

The debt swap offer started at 2 p.m. Wednesday, and will end at 4 p.m. on Sept. 4.

The Bureau of the Treasury (BTr) will announce the coupon rate on Sept. 7. Settlement will be on Sept. 9.

“The proceeds from the sale of new benchmark bonds (new money component) will be primarily used to settle accrued interests payable to bondholders of accepted eligible bonds in the exchange component and other transaction related expenses. The balance will be used for general budgetary purposes,” the BTr said in a statement.

The eight joint deal managers are BDO Capital and Investment Corp., BPI Capital Corp., Citicorp Capital Philippines Inc., Deutsche Bank AG Manila Branch, Development Bank of the Philippines, First Metro Investment Corp., Land Bank of the Philippines and the Hong Kong and Shanghai Banking Corp. Ltd.

“We received good feedback on the interest of both institutional and retail bondholders. The market has been awaiting this [debt swap]. This will give holders looking for a liquidity opportunity to hold liquid bonds,” National Treasurer Roberto B. Tan told reporters.

Tan said that despite external volatilities, this remained a good time to conduct a domestic liability management exercise.

“The bond market space is minimally affected. Based on our consultations with the underwriters, there was a very positive feedback to launch a debt swap,” he said.

The debt swap is aimed at getting rid of illiquid ISINs in order to put more into deep-volume securities.

ISINs mean International Securities Identification Numbers, which identify specific securities.

Tan said the government stands to save P2.4 billion in interest expense from this transaction.

“The transaction is part of the ongoing commitment to proactively manage the government’s debt portfolio. This will also provide an opportunity for existing government securities investors to exchange their illiquid bonds and receive benchmark bonds which will trade more efficiently in the market,” Finance Secretary Cesar V. Purisima said separately.

The government plans to undertake domestic liability management ahead of a US Federal Reserve move to hike interest rates.

Besides a debt swap, another initiative that the BTr is eyeing is to enhance the credibility of the yield curve while increasing the size of existing liquid securities in the proposed introduction of a standardized documentation for a repo program, which will be sponsored by the agency, Tan earlier said.