Phl, Asian bond markets healthy - ADB

MANILA, Philippines -  The Philippines local currency bond market remained strong, with P417 billion worth of bonds issued during the first six months of 2011.

Likewise, the local currency bond markets in emerging East Asia continued to expand in the first half of this year as demand from foreign investors continued to increase.

According to the Asian Development Bank (ADB), emerging East Asia had $5.5 trillion in local currency bonds outstanding at the end of June this year, 2.4 percent higher in local currency terms than the end-March level and 7.7 percent higher than a year ago figure.

Emerging East Asia comprises the People’s Republic of China (PRC); Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Vietnam.

Of the total amount, 30 of the 50 issuers accounted for 93 percent. Among the top issuers, 28 were listed companies on the Philippine Dealing and Exchange Corp. (PDEx).

The top 30 bond issuers were: banks (35 percent), real estate developers and operators (14 percent), holding companies (13 percent), and a brewery (nine percent). Bond sellers from various other industries accounted for the remaining 30 percent.

The biggest issuers was San Miguel Brewery with a corporate bond issue worth P38.8 billion ($890 million), followed by Banco de Oro Unibank Inc. with P36.5 billion (840 million), and Ayala Corp. with P26 billion ($600 million).

Meanwhile, the Philippine government sold $1.5 billion of 15-year dollar-denominated global bonds with a coupon rate of 5.5 percent. The sovereign raised $2.8 billion from international markets in first half of 2011, led by a $1.3 billion, 25-year global peso bond issued in January.

The Development Bank of the Philippines (DBP) also sold $300 million worth of 10-year bonds at a coupon rate of 5.5 percent. DBP has a program of foreign borrowing that will reach $1.2 billion in 2011.

In May, San Miguel Corp. sold three-year, $600-million exchangeable bonds with a coupon rate of two percent. The bonds can be converted into common shares to be sourced from the treasury stock of the company with a 25 percent premium on the offer price. The bonds are listed on the Singapore Exchange.

Quoting PDEx, the ADB report said that the liquidity of government securities, particularly fixed-rate treasury notes (FXTNs), improved dramatically between 2005 and 2010.

“The trading volume of FXTNs increased by a factor of 12 over this period, from P357 billion in 2005 to P4.25 trillion in 2010,” the ADB said.

Monthly trading volume averages rose from P35.7 billion in 2005 to P354 billion in 2010. Assuming an average of 20 trading days per month, daily trading volume soared from P1.8 billion in 2005 to P21.3 billion in 2010.

The highest recorded trading volume in a single day was P122 billion in October 2010. A number of factors have contributed to the increased trading of government securities including improved transparency in market activities, growing capitalization of the banking system, and improving regional and domestic economic indicators.

The country also got a stable outlook from the major international credit rating agencies.

Moody’s, for example, upgraded the foreign and local long-term bond ratings on debt issued by the government to Ba2, or two notches below investment grade, with a stable outlook for both. The upgrade was the result of the (i) progress made in fiscal consolidation by the current administration and (ii) sustained nature of macroeconomic stability on the back of a strong external payments position and economic growth.

Meanwhile, the Bureau of the Treasury (BTr) undertook last July its sixth domestic bond exchange program, which received the highest level of participation to date, with P299.4 billion worth of bonds being offered in exchange for new 10.5 and 20-year bonds.

It then issued P67.6 billion of 10.5-year and P255.8 billion of 20-year bonds – a total of P323.4 billion of new benchmark bonds – in exchange for eligible bonds. It was also the first time that bonds were exchanged for 20-year bonds.

The 10.5-year bond carries a coupon of 6.375 percent, while the 20-year coupon is eight percent. The last debt swap lengthened the average maturity of government bonds outstanding by two years.

“The series of debt exchanges have resulted in fiscal consolidation and a lengthening of the country’s debt maturity profile, allowing the government more flexibility in spending on infrastructure, social services, and public works,” the ADB said.