RP sells $500-M global bonds

The Philippines raised $500 million in global bonds yesterday, short of its fund-raising target as appetite for the country’s debt was sapped by a controversy over the accuracy of its economic data.

The bond sold at a price of 96.75 percent with a yield of 9.509 percent. The spread, or the premium investors demand to compensate for the risk, was 553 basis points over comparable US Treasuries or seven basis points wider than existing 2012 bonds.

Finance Secretary Jose Isidro Camacho said the spread could have been at least 20 to 25 basis points cheaper over comparable US Treasuries had it not been for the controversy over the country’s current account figures.

The bond, which was a reopening of an existing dollar bond maturing in 2013, is vital in the government’s strategy to plug a gaping budget deficit which has been hit by weak revenue collection.

"Having been two times oversubscribed with an order book of $1 billion, the deal speaks well of the Republic’s continued ability to draw global investors’ interest to our sovereign issues," Camacho said.

While the issue may not be enough to finance the government’s deficit for the whole of 2003, Camacho said the government preferred to maintain an over-subscription "to keep investors interested."

"We’re always looking at the market for opportunities anyway," Camacho said, indicating that there would be more borrowing throughout the year. "We need this to shield us from the economic implications of the tension building up between the US and Iraq."

Camacho said the controversy sparked by a news report from the Asian Wall Street Journal cost the government 25 basis points. "We are sore," he said. "The issue of current account has nothing to do with the growth of the Philippine economy, domestic financing costs, export health or the size of our foreign reserves."

Camacho said he suspected the news article was "malicious" and "deliberate," coming at a time when the bond offer was being priced.

Camacho said that insinuations of a decline in the current account and its impact on the country’s creditworthiness are "unfounded." However, he admitted that the shift in the measurement of imports would result in the reduction of the current account surplus.

Camacho declined to comment on reports that the information was deliberately leaked by the International Monetary Fund (IMF) to UBS Warburg which the AWSJ quoted as the source of the story.

Sources alleged that UBS Warburg was itself sore over the fact that it had earlier sponsored an international roadshow for the Philippine government but did not get a crack at the $500 million deal.

The global bond issue was managed by Credit Suisse First Boston, J.P. Morgan Securities and Morgan Stanley & Co.

According to Camacho, the offer stemmed from proposals submitted to the government during the holiday break. "We decided it was no longer necessary to bid it out because there were enough proposals to make comparisons," he said.

Camacho said the government decided on an early offer in anticipation of the borrowing frenzy that normally happen during the first quarter of the year. "We didn’t want to have to compete with everybody so we decided to do it early," he said.

But Camacho denied speculations that the government capped the borrowing at $500 million due to the disruption caused by the controversy, saying that although the book order reached $1 billion, the government preferred to maintain an over-subscription. – Des Ferriols