RP eurobond offer oversubscribed

Strong demand for the country’s debt paper in the European market has prompted the government to raise its recently reopened bond offering to as high as 600 million euro.

Standard and Poor’s (S&P) Ratings Services said it has assigned a "BB" debt rating to the country’s recently reopened euro-denominated 9.125-percent bond due in 2010.

The facility was launched in February last year, generating proceeds of 300 million euro for the government.

Market sources earlier said that the deal has so far attracted at least 400 million euro worth of orders, reflecting the pent-up appetite for Philippine bonds after its long absence from the Euro market.

The issuance was managed by Credit Suisse First Boston and Deutsche Bank.

"The sovereign credit ratings on the Philippine government are supported by the country’s adequate external liquidity," S & P said, adding that the country’s total debt service–projected at 30 percent of current account receipts in 2004– is similar to the median level of rated peers.

"This level is relatively high compared with the median level of 51 percent for similarly rated sovereigns," said Standard & Poor’s credit analyst Agost Benard.

The rating agency said it expects the budget deficit to remain high at over four percent of gross domestic product (GDP) due to weak tax collection and a narrow tax base, while government debt–excluding amounts guaranteed by the government and lent to public-sector corporations–is approaching 84 percent of GDP this year.

Benard said interest payments are likely to consume about 37 percent of central government revenues, up substantially from 22 percent in 1999.

He said the weak fiscal profile and shallow domestic capital markets force a continuing dependence on external capital to accelerate economic growth.

"This raises the vulnerability of Philippine financial markets to adverse external developments, and constrain macroeconomic stability," Benard said.

According to Benard, the Philippines’ narrow tax base contributed to weak public finances. Tax revenues as a share of GDP have fallen by more than three percentage points since 1997, due largely to weak revenue collections.

Benard said there was also an "increasing likelihood" of the government assuming most or all of National Power Corp’s debt, which was expected to reach $10 billion by year-end.

"The additional direct interest burden of about 1.3 percent of GDP, which the government would incur, would increase its fiscal inflexibility and vulnerability to exchange rates, as most of the debt is foreign currency denominated," Benard noted.