MANILA, Philippines – International credit raters issued yesterday a stable credit rating outlook on the ongoing bond-exchange exercise of the Philippine government involving a bond-sale component where it intends to raise $500 million and at the same time swap $2.5 billion worth of existing global-denominated bonds.
New York-based Moody’s Investor Service and Standard and Poor’s as well as London-based Fitch International Ratings issued their respective credit rating and sovereign credit rating outlook on the debt exchange offer of the Philippines.
Moody’s assistant vice president and lead sovereign analyst for the Philippines Christian de Guzman said it has assigned a foreign currency rating of Ba3 with a stable outlook to the securities under the Philippines’ forthcoming bond exchange offer that includes a new global bond issuance and a re-opening of a pre-existing bond issuance program.
“The rating is anchored by the continued strength in the sovereign’s external payments position and a favorable outlook for domestic-demand driven economic growth. In addition, the rating is supported by a relatively sound and liquid banking system, which poses manageable risks to the government’s balance sheet,” De Guzman explained.
De Guzman pointed out that the country’s resilient overseas remittances during the crisis and the subsequent export recovery have boosted foreign exchange reserves to a historically high level, providing the economy and government finances a significant buffer against external shocks. “The stable outlook is also influenced by the continued ability of the country’s central bank to anchor inflationary expectations under its formal inflation-targeting framework,” he said.
According to him, Moody’s is convinced that inflation would remain within the target of 3.5 percent to 5.5 percent this year and three percent to five percent for 2011 set by the Bangko Sentral ng Pilipinas (BSP).
He pointed out that Moody’s continued to maintain a sovereign credit rating of three notches below investment grade for the Philippines due to the continued weaknesses in revenue collection as well as a large public-sector debt overhang.
“Furthermore, the pre-crisis trend towards fiscal consolidation has not been restored given the larger-than-expected expenditure outlays so far this year,” De Guzman said.
Fitch Rating primary analyst Andrew Colquhuon expects no sovereign rating implications to follow from the country’s offer to exchange up to $3 billion from $17.7 billion of its outstanding sovereign Global bonds.
“Fitch views the recent global bond offering and debt exchange as part of the Republic’s broader liabilities management program,” Colquhuon said.
The offer of exchange is extended to holders of 14 bonds maturing from 2011 to 2031, and is scheduled to expire on Sept. 28, 2010. Eligible bonds maturing from 2011 to 2017 can be exchanged for newly-issued US dollar-denominated Global Bonds maturing in 2021. The Philippines’ 6.375 percent $1.85 billion Global bonds maturing in 2034 would be re-opened, for which eligible bonds maturing from 2011 to 2031 could be exchanged.
Coquhuon said Fitch has assigned a ‘BB’ Long-term foreign currency ratings to both securities under the Philippines’ forthcoming bond exchange offer. It rates the country’s sovereign credit at two notches below investments grade.
“Philippines’ sovereign ratings reflect a balance between the strength of external finances well-supported by strong foreign remittance inflows against some poor economic fundamentals, such as low investment and incomes, and weaknesses in the public finances including the sovereign’s chronically-low tax take,” he explained.
On the other hand, S&P assigned its ‘BB-’ senior unsecured debt rating to the proposed US dollar-denominated global bond issue by the Republic of Philippines. It also affirmed its ‘BB-’ senior unsecured debt rating on the Republic’s outstanding bond maturing in 2034, which will be tapped into as part of the exchange offer. The rating is equivalent to three notches below investment grade.
“The sovereign credit rating on the Philippines is supported by its external liquidity position, which has seen steady improvement despite the recent contraction in global demand,” S&P said.