Philippines sells global bonds to cover deficit

(Updated) MANILA, Philippines - The Philippines sold dollar-denominated bonds to foreign investors for the second time this year, a move seen to fund its ballooning budget deficit. After selling $1.5 billion global bonds in January, the national government sold $750 million worth of 6.5 percent dollar-denominated securities which will fall due in 2020. The bonds were priced at 99.065 percent to yield 6.625 percent or an equivalent of 332.6 basis points over benchmark US Treasuries. Sixty percent of demand – which was nearly six times oversubscribed – came from Asia, 25 percent from the US, and 15 percent from Europe. The offering “represents the lowest yield…ever achieved in a 10-year benchmark US dollar global offering," national treasurer Roberto B. Tan said in a statement issued on Tuesday. “The strong response to this issuance reflects continued investor confidence in the policies and economic management of the government particularly in responding to the global economic crisis," Finance Secretary Margarito B. Teves said. Citibank, Credit Suisse and Deutsche Bank were appointed as joint lead managers and joint bookrunners for the transaction. The country’s economic managers are seeing a wider fiscal gap of P250 billion or 3.2 percent of economic output than the revised program of P199.2 billion or 2.5 percent of gross domestic product (GDP). On Monday, Moody's Investors Service assigned a foreign currency rating of B1 but with a positive outlook to the government's global bond issuance. Tom Byrne, senior vice president and regional credit officer, said the rating on foreign and local currency bonds reflects the country's large public sector debt overhang that "leaves government finances vulnerable to shocks" despite improving debt trends due to low inflation and stable exchange rate, which are "crucial for the government's debt affordability." "In the current environment, the challenge for the authorities will be to minimize the damage from the global recession, while operating under relatively constrained fiscal conditions. Accordingly, although economic growth is being adversely affected by global conditions and fiscal performance has slipped, a continued commitment to public-sector fiscal reform and consolidation would bode well for the country's long-term macro- prospects and credit fundamentals," he said. The last rating action on Philippines was taken in February when Moody's affirmed the positive outlook on Philippines' B1 rating. Moody's considered resiliency in the country's balance of payments and financial system in face of the global recession aside from strained state of public finances. The new borrowing mix is at the range of 65 to 70 percent in favor of domestic at P464 billion and 25 to 30 percent for foreign sources at P197 billion. One of the options is the issuance of Samurai bonds within two years, following a memorandum of agreement between the Finance department and the Japan Bank for International Cooperation (JBIC) last month. In its June issue of Market Call, First Metro Investment Corp. and University of Asia and the Pacific said such issuance of yen-dominated bonds would bring down the pressure of government issuances to the overall supply of fixed-income papers in the market. "This will help lessen the acceleration of short-term yields," they said. - GMANews.TV