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Philippines: $1.5-billion bond issue up before end-September

September 24, 2012 The Philippine Star
MANILA, Philippines - The government’s plan to issue a combination of offshore and onshore bonds of up to $1.5 billion may be implemented before the end of the month, depending on market opportunities, a source said over the weekend.

The transaction, which is intended mostly to buy back illiquid bonds in the market, could include $1 billion worth of peso-denominated global bonds and $500 million worth of dollar bonds to be sold to local investors.

“It’s going to be a tender offer,” said the source familiar with the matter, stressing that the transaction is part of the government’s debt liability management efforts.

Jonathan Ravelas, chief market strategist of Banco de Oro said the planned transaction would allow the government to lengthen its maturity profile and take advantage of the present low interest rate environment.

“As a result of this exercise, there will be a liquid long-term benchmark,” Ravelas said.

He said investors are expected to snap on the offer.

“This will allow those with illiquid government securities to unload their holdings and it is also an opportunity for other investors to profit-take on their portfolio,” he said.

Furthermore, he said the government should offer a wide range of maturities from as short as five years to as long as 25 years.

“This provides the investors a wide array of options that would suit their requirements,” Ravelas said.

The Philippines has tapped Credit Suisse, Deutsche Bank and HSBC as global coordinators for the $1.5 billion transaction.

In October last year, the government also offered to buy back at least $1.5 billion of outstanding euro and dollar-denominated bonds.

The buy-back was meant to convert the government’s dollar debt into peso as part of its debt liability management efforts.

In January, the Philippines successfully raised $1.5 billion from an issue of 2037 global bonds. The Philippines, Asia’s largest sovereign issuer, has not issued global peso bonds yet for the year.

The government had programmed to borrow $4.02 billion from external sources this year, lower than the programmed $4.5 billion for last year, according to the 2012 borrowing program.

Of the $4.02 billion, the government plans to borrow $2.25 billion from the commercial debt market and to borrow $1.77 billion worth of program and project loans.

The government borrows from the local and foreign debt markets to fund its budget requirements.

It expects this year’s budget deficit to reach roughly P279 billion or 2.6 percent of the economy’s output, from the P197.8 billion incurred last year or two percent of gross domestic product (GDP).
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