RP to issue $500-M global bonds

The government announced yesterday it planned to issue at least $500 million in fresh global sovereign bonds maturing in 2011.

Deputy Treasurer Mina Figueroa said the bond issue was designed as a swap with existing short-term government bonds.

"This is primarily for liability management to lengthen maturity of our debt stock," Figueroa said.

The government said holders of its sovereign dollar debts due in 2007, 2008, 2009, 2010, 2017,2018 and 2024 had been invited to exchange those issues for the proposed 2011 bonds.

Finance officials said bondholders have until Wednesday, Feb. 12, to consider the offer.

The National Government (NG) has already secured Bangko Sentral ng Pilipinas (BSP) approval to either issue an unspecified amount of sovereign bonds or to go straight to the credit market for a straight loan.

This year, the government has a $2-billion foreign-exchange gap that it would have to fill in on top of its planned $1.8-billion forex borrowing for the whole of 2004.

The BSP warned that it "might not accommodate" the foreign exchange requirements of the NG and the National Power Corp. (Napocor) if the pressure would have adverse impact on the country’s gross international reserves (GIR).

Based on BSP data, the NG had a total funding gap of about $1.6 to $2 billion which was not covered by the borrowing program.

The documents showed that in addition to the 2004 gross deficit of $3.7 billion, the NG also has maturing obligations of $3.9 billion consisting of $2.2 billion of principal and $1.7 billion in interests.

Under the government’s $7.6-billion borrowing program, documents indicated that it planned to raise about $5.3 billion of the total through domestic borrowing and only $2.3 billion would be sourced through foreign borrowing.

According to a BSP source, if the NG would decide to stick to its 70-30 borrowing mix, the gap in foreign exchange "That’s why the BSP is recommending that the NG review its borrowing mix," the source said.

BSP Governor Rafael Buenaventura earlier said there was a need to maximize domestic borrowings but only as long as there was enough forex inflows that the NG could use to fund its forex requirements.

"However, should there be limited forex inflows from exports and investments in 2004, there will be a need for the NG to revisit its financing mix," Buenaventura said.

If forex inflows are not forthcoming, Buenaventura said the NG’s external debt service requirements should be financed from its foreign borrowings instead of purchasing dollars from the BSP using the proceeds of its domestic borrowing.

"Such approach would exert further pressure on both the exchange rate and domestic interest rates," Buenaventura said. If the BSP’s ability to maintain its GIR is threatened, he added that there would be significant adverse impact on market sentiment which would further result in weaker peso and higher interest rates.