Home Guarantee to issue P12-B zero-coupon bonds

The state-run Home Guarantee Corp. (HGC) will issue P12 billion worth of zero-coupon bonds with a seven-year maturity period.

Zero coupon bonds are debt papers sold at a steep discount but make no regular or annual interest payments.

A consortium of investment houses made up of SB Capital, RCBC Capital, AB Capital, Philippine Commercial Capital Inc., and Multinational Investment Bancorporation will underwrite the bond issue.

HGC president Gonzalo Bongolan Jr. said they are now awaiting the endorsement of the Bangko Sentral ng Pilipinas (BSP) which early this month gave its approval "in principle."

With another endorsement from the Department of Finance (DOF), the proposed bond issue would be forwarded to Malacañang before it could be launched.

The bond issue, the first by the government housing agency, will finance its maturing obligations as well as cover for its credit guarantee program.

The total amount of delinquent housing debts under HGC reached P28 billion. But the estimated total amount of non-performing loans (NPLs) in the government-controlled housing sector stands at over P220 billion.

Bongolan explained that more funds coming into the housing sector does not only solve unpaid debts but also encourages a secondary market for the housing sector.

Financial institutions and asset management companies can buy bad debts in housing loans, and re-sell the same at a later date for a better deal. It also allows government to reduce its debt exposure by allowing the private sector to enter the low-cost housing market under certain incentives.

The participation of banks and insurance companies in the bond issue could also be credited to the agri-agra lending requirements (for the banking sector), and the property lending and investment aspect (for the insurance sector).

"But the improving liquidity of the housing sector as well as its securitization is still a long way to go. We are talking here of about 52,000 delinquent accounts versus millions in the United States," Bongolan said during the formal launching of Bahan Financial Services Inc. (BFS). BFS is a private entity that manages and services the NPL portfolio of low-cost housing delinquencies transferred by government to the private sector.

Government transferred the delinquencies to Balikatan Housing Finance Inc., a joint venture between the National Home Mortgage Finance Corp., the Asian Development Bank, and the International Finance Corp.

In turn, BFS manages the residential loans as well as the outstanding debt balances for Balikatan Housing.