RP may buy back some of its $774-M Brady bonds

The Philippines may buy back some of its $774 million of Brady bonds as part of its plan to reduce overseas debt, National Treasurer Omar Cruz said yesterday.

"Some of these Brady bonds are very likely for retirement," Cruz told reporters. "Consistent with our strategy of moving away from more foreign borrowings to more domestic borrowing, we will be closely watching the buy-back of Brady bonds" by other countries.

The Philippines sold $4.3 billion of the bonds from 1990 to 1992. They are part of the reorganization of developing country debt orchestrated by then US Treasury Secretary Nicholas Brady. The Philippines’ remaining Brady bonds mature through 2018.

The Philippine government plans to reduce the overseas part of its debt to 42 percent this year from 45 percent last year. Budget deficits dating from 1998 have made the Philippines Asia’s biggest overseas seller of overseas debt and piled on P3.89 trillion of debt.

Brady bonds are coupon bearing bonds with fixed, step or floating rate (or hybrid combination of each). They have 10 to 30-year maturity, semiannual interest payments and generally amortize.

Principal and certain interest of Brady bonds are collateralized by US Treasury zero coupon bonds and other high grade instruments which, according to Cruz, would be released into the country’s reserves should the government decide to retire them.

When the IMF embarked on the debt relief program, the Philippines issued Brady bonds together with other participating countries, Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Mexico, Morocco, Nigeria, Poland and Uruguay.

"The government, consistent with its strategy to move away from foreign debt to more domestic borrowings, obviously is watching closely these Brady bonds," Cruz told reporters. "So as the Brady bonds come to be in the money on its call, then they become very, very lively for retirement."

According to Cruz, the Brady bonds have a call option, but the government’s Brady issues had different maturity dates. This would make them difficult to retire all at once.

According to Cruz, there were several options to pick from at present but the concept was not new. "The Brady bonds have always been there as part of the natural and sensible, prudent debt liability management strategy," he said.