Gov’t mulls Eurobonds to complete $3-B borrowing target

After the success of its two previous global bond offers, the Arroyo administration might consider issuing Eurobonds possibly in the third quarter of the year to complete its $3-billion commercial borrowing program for 2005.

This week’s successful $750-million global bond float brought down the National Government’s (NG) remaining commercial borrowing requirement to $850 million.

National Treasurer Omar Cruz said yesterday that the market response to the latest float had expanded its options for its subsequent borrowing in the coming months.

"We have all the time in the world and much more options this time," Cruz said. "We have until the third quarter before we have to seriously consider going back to the market."

Last April, the Bangko Sentral ng Pilipinas (BSP) has already given the NG a stand-by authority for an undetermined amount of Eurobonds sometime this year.

The BSP approved the proposed issue last month, paving the way for finance officials to commence negotiations with underwriters to prepare and package the issue.

According to Cruz, issuing Eurobonds was an option. "That is entirely possible because we only need to raise $850 million to complete our borrowing program this year," Cruz said. "Given that size, we can do Euro if the market is conducive," he added.

"We’re done the bulk, we can relax a little, take time looking at the market," Cruz said. "We don’t have to do anything until the third quarter anyway."

The NG’s latest foray into the market generated a total of $750 million, about $250 million more than the original issue size of $500 million. Last January, the government already raised $1.5 billion from its first global bond offer this year.

The BSP approved the stand-by authority for the Eurobond offer but the Monetary Board did not set any ceiling to allow the NG as much room to maneuver.

Finance Secretary Cesar V. Purisima had already said that the government’s debt portfolio was currently under review and there might be room to take advantage of lower interest rates on Euro-denominated borrowings.

"If you look at our exposure, about 50 percent is in dollars," Purisima said. "The rates on Euros are lower. So that can be in our horizon."

According to Purisima, banks are proposing several products to the National Government that are now under consideration, including structured financing.

The Arroyo administration’s January offer was a record-setting volume, selling $1.5 billion worth of 25-year bonds at 505-basis points over similar US treasury bonds.

The global bonds due February 2030 were sold to investors at a price of 98.13, yielding 9.7 percent with a coupon of 9.5 percent, equivalent to a spread of 505 basis points over 30-year US treasury bonds.