RP raises $1B in global bonds

The Philippines has raised $1 billion from a fresh offering of sovereign bonds with the funds earmarked for the financing needs of debt-laden state-owned National Power Corp. (Napocor), the Department of Finance said yesterday.

The government offered paper from two previous bond series which mature in 2015 and 2025, the finance department said.

A total of $300- million worth of the 2015 bonds with a yield of 8.875 percent were sold. A further $700-million worth of 2025 paper at 10.625 percent were also sold.

The issue was lead-managed by Credit Suisse First Boston, Deutsche Bank and JP Morgan Chase, who also acted as bookrunners for the issue.

The successful bond offering came after President Arroyo said the Philippines was "in the midst of a fiscal crisis," due to its growing budget deficit and large consolidated public debt, much of it owed by Napocor.

Finance Undersecretary Eric O. Recto said the market response had been good for the offer which was originally targeted to raise $750 million. "It’s one of the biggest over-subscriptions I know of," he said. "The demand was clearly there."

Recto said the issue had "impeccable timing" and the response of investors showed that the market still gave the Arroyo administration the "benefit of the doubt" that it could meet its targets for the year.

"Clearly, our access to the market is unimpeded," " Recto said. "But it is clear that investors would continue to be interested in seeing us make progress," he added

The real challenge, according to Recto, was laying down the requirements for improving the spreads on Philippine bonds. "Right now, we are not making any inroads but the steps that we did manage to take are not insignificant."

Earlier, the Energy Regulatory Board allowed Napocor to raise its rates to recover part of its losses and plug the hemorrhage that has been forcing the government to incur more debts on its behalf.

Standard & Poors Ratings Service said the Napocor rate adjustment was not enough but Recto said the impact on the fiscal balance was still substantial.

"Big steps are better but small steps in the right direction could also go a long way," he said.

The global bonds have already been rated "BB" by S&P, in line with its BB rating on the country’s foreign currency borrowings.

S&P said the sovereign credit ratings on the Philippine government reflect its relatively sound external liquidity position, including a favorable maturity structure of its public foreign debt.

S&P said this was balanced against high fiscal deficits stemming largely from inadequate tax collection, and the consequent high public debt burden.

S&P noted that the Philippines‚ current account surpluses of over three percent of GDP and stable foreign reserves provide adequate near-term external liquidity, despite rising external debt.

Total external debt, on the other hand, is projected at 117 percent of current account receipts this year, similar to the ‘BB’ median level, with average maturity of about 17 years.

"Over the medium term, however, external viability will come under increasing strain if the country’s negative fiscal trajectory is not reversed in a fundamental and sustainable manner," S&P said.

"Although there have been slight improvements in revenue collection, and this year’s budget remains broadly on track, a substantial reduction in the fiscal deficit and the attendant debt burden will need additional revenue measures, and improved administration of existing ones," S&P said.