The Bureau of Treasury (BTr) revealed over the weekend that the initial book-building process had generated over P16-billion worth of pledges, indicating that the market was eager for the government to increase the volume.
Despite the apparent starvation in the market, however, National Treasurer Sergio Edeza told reporters it was unlikely for the government to approve another increase in the DLPN issue even if prices become tempting.
"Whatever price they offer, we wouldn’t increase the offer. If they want to participate, let them buy our peso notes," Edeza said.
The planned DLPN issue will have a three-year maturity but the specific terms including the price and foreign exchange rate base, would be set once the notes are actually issued.
The float is scheduled on Jan. 16 and the proceeds will be used to help finance the Arroyo administration’s P202-billion projected deficit for 2003.
DLPNs allow investors to hedge against the volatility of the peso against the dollar. If a bank or an investor bought P100-million worth of these papers, for example, they would earn a yield based on the prevailing rate of the three and five-year Philippine debt papers.
But the principal amount would be paid at the prevailing exchange rate at the time of maturity. If the peso falls in two to three years to a level lower than the time the investment was made, then the investor gets an additional return.
If the peso is stronger by the time the debt paper matures, then the government would have additional earnings.
According to Edeza, this year’s DLPN issue will be underwritten by the usual group of Deutsche Bank, Rizal Commercial Banking Corp. and Multinational Investments Inc.
Late last year, the government was able to get a relatively good price for its dollar-denominated notes as banks elbowed each other for a share of the P5-billion offer.
Pricing for the notes were concluded after a short book-building period, with the gross coupon rate set at 7.5 percent and the net yield set at 6.05 percent based on the morning average peso-dollar average exchange rate of P53.676.
The net yield was better than the 10-percent rate carried by the dollar-linked peso notes issued by the government last year.
This means that investors that will get the notes from the banks would get a yield on their investment of 6.05 percent at the end of the three-year period.
The government, as the issuer, gets the cash immediately but it only would only make money if the peso actually manages to appreciate by the time the notes mature in three years.
The issue was also handled by RCBC Capital, Multinational Investment Bankcorporation and Deutsche Bank.
The offer was taken up by a total of 11 banks led by I Bank which bought P1-billion worth of notes, followed by Deutsche Bank and Rizal Commercial Banking Corp. which both accounted for P754 million each.
The Philippine National Bank, Equitable PCI Bank and Bangko de Oro each got P402 million each while Chinatrust got P302 million.
Unionbank , Metropolitan Bank and Trust Co. and ING Bank each got P251 million while Multinational Investment Bankcorporation got P125-million worth of notes.
According to banking sources, some banks were overbought and they needed cover that would hurl them over the requirement for banks to limit their holdings to $10 million or five percent of their unimpaired capital, whichever is lower.
"Banks can use this to fund their overbought position which they have to do because the year is about to close," said one banker.
The banker explained that in the past, dollar-linked notes have allowed banks to use the instrument up to 90 days to cover their overbought positions.