Philippines to borrow more

MANILA, Philippines — The Philippine government yesterday announced its plans to sell US dollar-denominated global bonds in the international market to raise more funds for the state coffers.

National Treasurer Rosalia De Leon said the announcement was made yesterday, but declined to provide more details on the issuance.

Credit watcher S&P Global Ratings assigned a BBB+ long-term foreign currency issue rating to the proposed issuance, which is initially set at a benchmark size.

The national government borrows from both domestic and external lenders to plug the expected deficit in its budget.

Earlier, the Department of Finance (DOF) said the country’s fiscal deficit is estimated to widen to as much as 5.3 percent of gross domestic product (GDP) amid an expected drop in revenues due to the coronavirus disease 2019 or COVID-19 pandemic.

The last time the Philippine government issued dollar bonds was in January 2019. Back then, the country was able to raise $1.5 billion from the sale of 10-year securities.

The bonds fetched a coupon rate of 3.75 percent, 110 basis points over the US Treasury rate. This was also lower than the initial pricing guidance of plus 130 basis points.

Following the announcement on the global bonds, short-term government securities during yesterday’s auction saw strong demand from investors, resulting in lower rates across-the-board.

Three-month Treasury bills fetched an average rate of 2.617 percent, which is 49.6 basis points lower than last week’s 3.113 percent.

Healthy demand met the auction, with total tenders amounting to P29.133 billion. This prompted the auction committee to upsize the awarded volume to P7 billion from the original offer size of P5 billion.

Meanwhile, rates for 182-day debt papers averaged at 2.831 percent, also 40.8 basis points down from 3.239 percent last week.

The auction committee also decided to upsize the awarded volume to P7 billion, instead of P5 billion, after total bids reached P27.576 billion.

Lastly, the average rate for 364-day T-bills dropped by 24.1 basis points to 3.054 percent from 3.295 percent last week.

The P10 billion offering was fully awarded as total tenders amounted to P34.445 billion.

According to De Leon, the auction attracted strong demand from investors given the ample liquidity in the financial market.

She said rates also dropped following the “reassuring statements” from Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

Diokno said earlier the central bank now expects a smaller contraction of the economy as the impact of the government’s measures to soften the blow of the COVID-19 pandemic gains traction.

In addition, De Leon said the market has also considered the government’s efforts to raise funds for coronavirus response measures, including the upcoming dollar bond issuance.

“Additionally, national government resources (will be) augmented by ODA (official development assistance) inflows and national government announcement of issuing in dollar market,” De Leon said.