Gov’t accepts P54B in 10-yr bond swap

The government agreed to exchange P54 billion of shorter-dated notes into 10-year bonds, as part of the country’s plan to have more long-term borrowings to manage

The size of the 10-year benchmark bonds makes it one of the largest issues in the domestic market, surpassing the five- and seven-year bonds, National Treasurer Omar Cruz said yesterday. The buyback was more than twice the P20 billion Cruz had expected.

The government, which plans to sell more fixed-income securities at home and less overseas, wants to increase trading of local-currency bonds to boost the capital market. Selling 10-year debt in exchange for shorter-term securities may also reduce its borrowing costs as the Philippines narrows its deficit and inflation slows.

Bond exchanges "will become a regular program" of the government to manage debt and keep benchmark notes "liquid enough’’ to attract foreign investors, Cruz said in an interview today. In six months, the government will likely offer new exchanges into three-, five-, seven- and 10-year bonds, he added.

The buyback will create a new 10-year benchmark bond with a coupon of 9.125 percent and a size of P58 billion. That includes interest on the actual amount of bonds swapped.

"The problem with the Philippine domestic market is that the issues are small and illiquid,’’ said Joel Kim, who helps manage $8.5 billion of emerging market funds including Philippine stocks and bonds at ING Bank in Hong Kong. A bigger issue "allows investors to go in and out" of the market, helping boost their demand.

Cruz said the "bigger and more liquid" market for 10-year securities will become a benchmark for long-term borrowings, paving the way for Philippine companies to offer more long-term debt to fund expansion. – Des Ferriols