Government to continue tapping Panda bond market

MANILA, Philippines — Following its successful maiden Panda bond offering, the Philippine government will continue to tap the Chinese debt market as one of its regular sources of foreign borrowings in the following years, the Department of Finance (DOF) said.

In a text message, Finance Secretary Carlos Dominguez III said Panda bonds or renminbi (RMB) – denominated securities would “most likely” become one of the Duterte administration’s regular funding sources in the offshore debt market.

This is following the successful inaugural Panda bonds offering of the government, which allowed it to raise 1.46 billion renminbi priced at five percent, a tight spread of 35 basis points above the benchmark rate.

If swapped into dollars, the Bureau of the Treasury (BTr) said the securities would have an indicative rate of 2.93 percent, 23 basis points below the three-year dollar yield.

The offering was flocked by investors, with a total order book of 9.22 billion renminbi or 6.32 times the original volume. The BTr said this is the largest subscription for any Panda sovereign issuer.

Offshore investors comprised 87.7 percent of the total bids, while the remaining 12.3 percent came from Chinese onshore investors.

“The Philippine government’s successful inaugural issuance of Panda bonds highlights the investor confidence that the country enjoys on the back of its strong credit profile,” Dominguez said.

“This is also one of the concrete results of President Duterte’s independent foreign policy,” he added.

Standard Chartered Bank (China) Ltd., joint lead underwriter on the issuance, said the transaction was “amazingly successful” with the pricing hitting the lower end of its five percent to 5.6 percent price guidance.

“This debut Panda bond issuance signifies an important move by the ROP (Republic of the Philippines) in supporting RMB internationalization and also opens up the Panda market for Philippine and ASEAN (Association of Southeast Asian Nations) corporates and financial institutions,” the bank said.

Stanchart said strong demand from both onshore and offshore investors reflects their confidence in the Philippines’ credit profile, as evidenced by the AAA rating from Lianhe Credit Rating Co. Ltd., as well as the country’s growth prospects.

According to the Investor Relations Office (IRO), proceeds of the bond sale will be deposited to the Bangko Sentral ng Pilipinas (BSP) as part of its international reserves and converted to Philippine peso.

Once converted, the money will be used to fund the government’s infrastructure projects and other financing requirements, the IRO said.

The government borrows from both local and foreign lenders to pay maturing debt, as well as to plug its budget deficit, which was raised to three percent of the projected gross domestic product as part of the Duterte administration’s expansionary fiscal policy.

This fiscal policy aims to give the government proper leeway to implement its massive infrastructure program, dubbed as Build Build Build.

This program, which is expected to require P8.4 trillion in investments over the medium term, is seen to help the economy sustain its growth track and hit the target range of seven percent to eight percent this year.