NG to issue P4-B convertible bonds

The National Government is hoping to raise at least P4 billion through the flotation of five-year convertible bonds.

Finance Undersecretary Joel Bañares said the bonds, will be convertible to equity in any of the government-owned or controlled corporations, except in the Philippine National Bank which the government is set to privatize in April or June.

Bañares said that while the government hopes to generate at least P4 billion from the flotation of the convertible bonds, the amount can go higher if there are more interested investors.

The flotation of the convertible bonds is being eyed within the first quarter of this year and will primarily target small investors.

Pension fund managers such as the Social Security System (SSS) and the Government Service Insurance System (GSIS) are also targets of the bond flotation.

The coupon rate of the planned five-year convertible bonds, Bañares said, will be based on the prevailing yield of five-year Treasury bonds.

However, Bañares clarified the yield of the convertible bonds will be slightly lower than the five-year T-bill because the bonds can be exchange for equity in any government owned or controlled corporation during the five-year holding period.

More specifically, Bañares said, the bonds can be converted to equity in the Manila Electric Co., Philippine National Construction Corp., Philippine Phosphate and Fertilizer Corp. and IBC-13 or RPN-9.

The Department of Finance is trying to look for creative ways to raise additional revenues to finance the programmed budget deficit this year of P62.5 billion.

The government is also trying to avoid additional borrowings, both abroad and domestically.

The government has to slow down on its foreign borrowings because it is already nearing its foreign debt ceiling.

Domestically, it is afraid to influence interest rates upwards and crowd out the private sector.

Raising taxes is also an unpopular move, especially with the public increasingly becoming discontented with the Estrada administration.