RP eyes Islamic market to raise $250M

The Philippines may open bond facilities maturing in 2014 or 2025 or even tap the Islamic market to raise $250 million and finish its financing requirements for 2003, government officials said yesterday.

National Treasurer Sergio Edeza told Reuters that opening the existing bond facilities was an option, although nothing was final yet.

"We only need $250 million and these are only options," he said.

Finance Secretary Jose Isidro Camacho said options being considered to complete this year’s foreign borrowings and to pre-fund for next year’s requirement included the sale of global, euro or Islamic bonds abroad towards the end of the year.

"We can do global, we can do euros. There is appetite. The euro is more medium term, between five and 10 years. The global (bond) is longer," Camacho said.

"The Islamic bond market is also an option. I got favorable feedback and they said that if we wanted too, we could access the market. It’s very doable even this year."

Camacho said Islamic bonds generally have a shorter term with a maturity of three to five years, have tighter pricing, and sized between $200 to $500 million.

"If we are to consider financing like this, this could be symbolic. It could demonstrate strengthening of the relationship between the country and Islamic world," Camacho said.

The mostly Roman Catholic Philippines is trying to push ahead with peace talks to end the three-decade separatist conflict with Muslim rebels that has killed at least 120,000 people.

Economists said the planned borrowing from the Islamic market may make financial sense for the Philippines since it would diversify its debts and be cheaper to fund.

Islamic banks and bonds do not formally pay interest, considered usury by many Muslims. They instead make regular payments based on profits from approved investments.

"That’s a sensible approach. Not because there is the need to bond closer with the Muslim countries but in the practical sense," said G.K. Goh Securities analyst Song Seng Wun.

"Most likely, the Philippines will be the first predominantly Christian nation to tap the Islamic market dominated by Middle East countries like Saudi Arabia all the way to Malaysia."

Peace talks with the Muslim rebels are expected to re-start next month under the auspices of Malaysia.

The Philippines – the largest sovereign debt issuer in Asia outside of Japan – has borrowed about $2.25 billion via bonds from the global market this year, including $750 million for cash-strapped state firm National Power Corp. (Napocor).

The government raises funds from local and foreign markets to finance its budget deficit, which is expected to narrow to P197.8 billion in 2004 from the target of P202 billion this year.

The Philippines – which had a 52-48 borrowing mix for 2003 in favour of the local market – plans to further trim down its overseas borrowings next year with its plan to source 70 percent of its budget requirements from domestic market. – Reuters