Swap of illiquid IOUs with new bonds OKd

The government accepted P237 billion in illiquid state debt paper to be swapped with new benchmark bonds due 2025 and 2040, the Department of Finance said on Tuesday.

The Bureau of the Treasury also accepted new subscription offers worth P9.6 billion for 2025 bonds, the DOF said.

Given the market’s “strong response,” the government priced both the 2025 bonds and 2040 bonds at their minimum coupon rates of 3.625 percent and 4.625 percent, respectively, it added.

Settlement is scheduled Wednesday, National Treasurer Roberto B. Tan earlier said.

The domestic liability management exercise attracted about P388 billion in tender offers—P134 billion for benchmark bonds due 2025, and P254 billion for benchmark bonds due 2040.

“This represents an oversubscription of at least 3.88 times for the total transaction over the indicated minimum issue size of P50 billion per tranche,” the DOF noted.

The Treasury had been granted authority to accept a maximum of P300 billion in bonds to exchange.

“As a result, the [government] has established new benchmark bonds in the amount of P121 billion of 2025 bonds and over P142 billion of 2040 bonds,” according to the DOF. These amounts pertain to both the new money component and the premium on select International Securities Identification Numbers or ISINs, which identify specific securities.

“The average coupon of accepted bonds decreased by 132 basis points as a result of the transaction. Eligible bonds accepted and exchanged into the new benchmark bonds had their average maturity lengthened by 10.7 years,” the DOF added.

Offers for new subscription in 2025 bonds reached P21 billion.

On Aug. 27, the government launched a domestic debt swap to inject more liquidity into the market amid external volatility. The debt swap offer ended on Sept. 4.

“The transaction has helped the [government] achieve its debt management objectives while also providing investors with new benchmark bonds in exchange for illiquid bonds. Amid turbulence around the world, the overwhelming response we received from the market is an unequivocal show of strength and stability on the part of the [government]. With the introduction of two tranches of exit bonds this year, the [government] continues to provide innovative solutions in line with investors’ needs,” Finance Secretary Cesar V. Purisima said in a statement.

“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,” according to the Treasury.

Tan said the government would save P2.4 billion in interest expense in the first year from this transaction.

The government is undertaking  domestic liability management ahead of any US Federal Reserve move to raise interest rates.–Ben de Vera