Government raises P5-B from $-denominated bonds

The government raised P5 billion yesterday from its offer of dollar-denominated notes as banks scrambled to get their share to help cover their overbought positions as well as form part of their year-end window dressing.

Pricing for the notes is scheduled today but market sources disclosed that banks were looking at a coupon rate of roughly six percent. Settlement is scheduled on Thursday.

The issue was approved by the Monetary Board (MB) last week to help the government fund its budget deficit which is seen at P223 billion for the whole of 2002.

The issue is being handled by the same group that handled last year’s dollar-linked bonds, namely RCBC Capital, Multinational Investment Bankcorporation and Deutsche Bank.

Market sources said a total of 11 banks were able to subscribe to the offer, led by International Exchange Bank which bought P1-billion worth of notes, followed by Deutsche Bank and Rizal Commercial Banking Corp. which both accounted for P754 million each.

The Philippine National Bank, Equitable PCI Bank and Banco de Oro each got P402 million each while Chinatrust got P302 million.

Unionbank, Metropolitan Bank and Trust Co. and ING Bank each got P251 million while Multinational Investment Bancorporation got P125-million worth of notes.

"Banks can use this to fund their overbought position which they have to do because the year is about to close," said one banker.

The banker explained that in the past, dollar-linked notes have allowed banks to use the instrument up to 90 days to cover their overbought positions.

On the other hand, the International Exchange Bank said the issue would help relieve the peso which has been fluctuating wildly over the past few months.

"It is a good instrument. It will help, in part, to alleviate the pressure on the peso," said IBank executive vice president Antonio Moncupa .

National Treasurer Sergio Edeza said earlier that banks have been asking the Treasury to issue only three-year bonds instead of the original plan to issue three and five-year notes. "We’re just acceding to the demand of the market but only for P5 billion," he said.

Last year, the government issued dollar-linked bonds also handled by the three financial institutions. The yields on the two-year debt paper was about 9.5 percent while the three-year paper offered a yield ranging from 10.3 to 10.6 percent.

The yields were comparable to the rates of the dollar-denominated Republic of the Philippines debt papers and lower than Treasury bill yields at the time which was about 10.86 percent for six-month papers.

The new borrowing is expected to discourage people from buying dollars in the spot market and investing these in dollar-denominated papers.

If a bank or an investor bought P100-million worth of these papers, for example, they would earn a yield based on the prevailing rate of the three and five-year Philippine debt papers.

But the principal amount would be paid at the prevailing exchange rate at the time of maturity. If the peso falls in two to three years to a level lower than the time the investment was made, then the investor gets an additional return.

If the peso is stronger by the time the debt paper matures, then the government would have additional earnings.

Although the Arroyo administration has completed the bulk of its pre-funding activities, it is still not out of the woods as its deficit ballooned to P188 billion from January to October.

By the end of the year, the deficit is expected to reach P223 billion, almost P93 billion over the government’s original target of P130 billion for the whole year.