Philippines borrows P145.9 billion in new US dollar bond sale

MANILA, Philippines — The Philippines raised around P145.9 billion in new debt during its third fund raising activity offshore this year, as the Duterte administration continues to search for more cash to fund ballooning pandemic expenses.

In a statement on Tuesday, the Bureau of the Treasury announced it sold $3 billion worth of benchmark-sized, US-dollar denominated global bonds maturing in 10.5 and 25 years. The transaction is expected to settle on July 6.

The dual-tranche offer was met with robust investor demand, the Treasury said, allowing the government to borrow money at much cheaper costs. Interest charged for the bonds, as measured by the coupon rate, stood at 1.95% for the 10.5-year securities while the 25-year bonds fetched a higher rate of 3.20%.

Specifically, there was “heavy bias” towards the 25-year debt papers, which National Treasurer Rosalia de Leon took as an indication of investors’ confidence on the economy’s ability to recover from the pandemic.

Finance Secretary Carlos Dominguez III, who earlier revealed plans to return to the US bond market “before rates skyrocket”, agreed with De Leon’s assessment. “It shows that investors appreciate the Duterte administration’s heightened efforts to revive the economy back to pre-pandemic levels while maintaining fiscal responsibility,” Dominguez was quoted as saying by the Treasury.

The latest bond sale came over two months after the government raised around P122 billion (€2.1 billion) during its largest euro bond sale in April. Prior to that, the Duterte administration sold ¥55 billion (P24.2 billion) worth of Japanese yen-denominated “Samurai” bonds in March.

Proceeds from the fresh issuance will be used for “budgetary support” for various state programs, including those meant to help the country get out of the coronavirus hole. Finance department data showed the national government has incurred $12.3 billion in foreign obligations as of April 8 to fund a costly pandemic response, and the latest bond sale would only add to that debt pile.

Borrowings would grow as the budget deficit, as a share of the economy, is seen to widen to a record 9.4% this year as the government ramps up spending on big-ticket infrastructure projects and procurement of vaccines. To plug the fiscal gap, the government wants to borrow P3.02 trillion from local and foreign sources this year.

“The Republic’s success in international debt markets underscores the attractiveness of the Republic’s credit profile to the investor community, and the market’s confidence in its economic fundamentals going forward,” Finance Undersecretary Mark Dennis Joven said.

$1 = P48.645