BSP hires JP Morgan to underwrite $250-M loan

The Bangko Sentral ng Pilipinas has hired US-based investment bank JP Morgan Chase to underwrite a $250-million loan next month, the proceeds of which will be used to shore up the BSP’s dollar reserves.

"We have mandated JP Morgan Chase to raise an initial $250 million, we told them that we’ll accept their offer to arrange the borrowing at this rate," said BSP Governor Rafael Buenaventura. The BSP chief however, did not disclose the fixed interest rate.

Buenaventura said the $250-million loan is just an initial offering out of the planned $500-million borrowing.

JP Morgan Chase bested other contenders such as UBS Warburg, Citibank N.A. and Salomon Smith Barney for the deal.

Buenaventura said the BSP’s borrowing is meant to ensure that the country’s dollar war chest or dollar reserves by yearend is maintained at $14 billion.

There are concerns the country’s gross international reserves will deteriorate if export receipts contract further. BSP expects exports to decline by up to 15 percent by the end of the year.

The country’s dollar reserves level is currently at about $14.207 billion. The GIR is the total foreign currency holdings, mostly in US dollars, that are held by the BSP. It includes gold reserves and special drawing rights, an artificial basket of money used as currency by the International Monetary Fund (IMF).

A large or comfortable GIR level helps stabilize local prices by insulating the country from volatility in the peso-dollar exchange rate.

Proceeds from the borrowed funds will also support the country’s balance of payments (BOP) account, which it expects to show a deficit of as much as $2.3 billion by yearend.

After getting a mandate from the BSP, JP Morgan Chase will underwrite the loan and redistribute the amount to prospective investors.

The loan has a maturity of four years and will tentatively yield the prospective investors a nine-percent coupon rate to be paid semi-annually. — Rocel Felix