RP kicks off sale of $1.5-billion global bonds

MANILA, Philippines - The government is expected to have sold as early as last night (Manila time) as much as $1.5 billion in dollar-denominated bonds as it wants to be the first Asian sovereign debt issuer to sell bonds this year.

This developed as Moody’s Investors Service and Standard & Poor’s already assigned their respective ratings on the global bonds. Moody’s assigned a foreign currency rating of Ba3 with a stable outlook while Standard & Poor’s Services affirmed its BB- senior unsecured debt rating on the bonds.

Market sources said the government is expected to have concluded the pricing for 10-year and 25-year bonds in New York last night (Manila time). According to the terms, the government would reopen 10-year and 25-year bonds due 2020 and 2034, giving investors options to park their funds for a longer time. 

Earlier yesterday, the government mandated three foreign banks – Barclays Capital, HSBC and Deutsche Bank – to sell up to $1.5 billion in global bonds. The banks have already started taking orders from investors yesterday morning.

Market sources said the government tapped the three banks among several foreign institutions which submitted underwriting proposals from Dec. 29, 2009 to Jan. 4, 2010.

The government wanted to issue the bonds ahead of Indonesia which is reportedly planning to sell as much as $4 billion in dollar-denominated bonds. Indonesia needs to raise funds to plug its budget deficit of $10.4 billion.

Government officials said that if Indonesia sells bonds ahead of the Philippines, it would siphon off funds in the global debt market.

“That’s the major consideration (for the timing),” a government source said earlier in the day.

Last week, the Bangko Sentral ng Pilipinas approved the sale of roughly $1.5 billion in euro or dollar-denominated bonds. It also gave the government the green light to sell as much as $1 billion in Samurai or yen-denominated bonds.

The government needs to borrow from the global debt market to plug a swelling budget deficit, brought about largely by weak revenues, rampant smuggling and corruption and additional need to spend more because of the lingering impact of the global financial turmoil and the devastation left by typhoons Ondoy and Pepeng.

The budget deficit already reached P272.5 billion as of end-November 2009, already above last year’s deficit ceiling of P250 billion.

Moody’s, for its part said its Ba3 rating on the Philippine bonds – three notches below investment grade – reflects the country’s “large public-sector debt overhang” which the rating agency said, leaves government finances vulnerable to domestic policy slippage or external shocks such as a rise in global inflation.

At the same time, Moody’s said the rating is supported by the country’s “fortified external payments position” and a relatively sound liquid banking system.

According to the latest data from BSP, the country’s balance of payments yielded a surplus of $1.1 billion in the third quarter of 2009, a marked turnaround from the $394 million deficit registered in the same period a year ago, due mainly to strong dollar inflows from overseas Filipino workers.

The third quarter payments position brought the BOP in the first nine months of the year to a surplus of $3.3 billion.

Boosted by a strong BOP position, the country’s gross international reserves level rose to $43.7 billion as of end-November, P500 million above the end-October figure of $43.2 billion.        

“The historically high level of official foreign exchange reserves – in part bolstered by resilient overseas remittances – helps to buffer the economy and government finances from external shocks. As a result, the peso has been relatively stable this year,” sad Thomas Byrne, Moody’s Senior Vice President and Regional Credit Officer.

“The stable outlook is also influenced by relatively mild inflationary pressures and the ability of the country’s central bank to anchor inflationary expectations under its formal inflation-targeting framework,” he added