BSP to borrow $500M to pay maturing debts

The Bangko Sentral ng Pilipinas (BSP) will borrow $500 million to refinance its maturing obligations and fund its requirements for the rest of the year.

The BSP announced yesterday that the Monetary Board approved the loan proposal submitted by a group of banks for a fully-underwritten amount of $500 million.

The group includes HSBC, HSH Nordbank AG, Standard Chartered Bank, Mizuho Financial Group, Sumitomo Mitsui Banking Corp., DBS Bank Ltd. and Mitsubishi Securities (KH) Ltd.

The BSP said the loan structure could be a three-year bullet repayment or a five-year amortizing loan with an average life of three years.

"The proceeds of the new loan will be used for refinancing and general funding requirements of the BSP," the central bank said.

The BSP said it had no need to go to the credit market for its own funding requirements until the third quarter of the year, but officials said the success of the National Power Corp. and the National Government in their borrowings had opened a window for the BSP’s own borrowing effort.

According to BSP deputy governor Amando Tetangco, the BSP has pre-funded some of its requirements late last year but its borrowing strategy is opportunistic.

The BSP has been pressing the NG to grab every opportunity to borrow from the international market before the May elections as its gross international reserves are slowly being depleted due to debt service requirements.

In addition to the 2004 gross deficit of $3.7 billion, the national Government also has maturing obligations of $3.9 billion consisting of $2.2 billion in principal and $1.7 billion in interests.

Under a $7.6-billion borrowing program, the government plans to raise about $5.3 billion through domestic borrowing and $2.3 billion through foreign borrowing.

This leaves a foreign exchange funding gap of $1.6 billion if the government would decide to use funds from project loans and a gap of as much as $2 billion without project loans.

The BSP is still pressing for the government to adjust its 70-30 borrowing plan for 2004 so that the BSP and the NG together would be able to raise the total forex requirement.

"Eventually, we will have to do some purchases not because the NG doesn’t want to borrow but because they might not be able to," said BSP Governor Rafael Buenaventura. "It’s all a matter of timing."

Buenaventura said there is a need to maximize domestic borrowings but only as long as there are enough forex inflows that the NG could use to fund its forex requirements.

"However, should there be limited forex inflows from exports and investments in 2004, there will be a need for the NG to revisit its financing mix," Buenaventura said.

If forex inflows are not forthcoming, Buenaventura said the NG’s external debt service requirements should be financed from its foreign borrowings instead of purchasing dollars from the BSP using the proceeds of its domestic borrowing.

"Such approach would exert further pressure on both the exchange rate and domestic interest rates," Buenaventura said. If the BSP’s ability to maintain its GIR is threatened, he added that there would be significant adverse impact on market sentiment which would further result in weaker peso and higher interest rates.