Foreign loan prepayments reach $1.843B in first 9 months

Prepayments of foreign loans by the public and private sector reached $1.843 billion in the first nine months of the year, about half the amount of foreign debt that was prepaid over the same period last year.

The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that the public sector prepaid $865.6 million worth of foreign debt from January to September, much lower than the $1.08 billion that it prepaid last year.

The private sector, on the other hand, prepaid a total of $978 million, also lower than the $1.47 billion that private companies prepaid over the same period in 2007.

As the peso’s strength declined, this year’s prepayments lagged behind last year’s total but central bank officials said the fact that there were still prepayments at all meant that the clean-up of foreign debt portfolio by the private and public sector was still ongoing.

Officials said both sectors still found it cheaper to prepay foreign loans even with the peso depreciating against the dollar.

However, the BSP explained that the decline in prepayments could also be due to the fact that the number of obligations that could still be prepaid was already dwindling down since public and private borrowers were also winding down the clean-up of their foreign debt portfolio.

BSP Governor Amando M. Tetangco Jr. said earlier that the BSP did not expect prepayments to be as large as last year, however, saying that aside from the change in the position of the peso against the dollar and other currencies, public and private loan portfolios have begun to shift.

“There is only so much foreign obligations that either the public or the private sector can prepay,” Tetangco said. “Eventually that will taper off. But they’re still doing it so there must be some left-over, just not as much as before.”

The bulk of this year’s prepayments so far came from the transaction recorded in May this year when the BSP approved the pre-payment plan of the state-owned National Power Corp. (Napocor) that would settle $260.2-million worth of yen-denominated foreign obligations in June.

Officials said the prepayment would settle various financial obligations guaranteed by the Japan Bank for International Cooperation (JBIC) amounting to ¥27.2 billion or $260.2 million.

The June prepayment was the first for Napocor whose debt was estimated by the Power Sector Assets and Liabilities Management Corp. (PSALM) to amount to a total of $18 billion including $7.17 billion worth of outstanding loans and $11 billion worth of long-term obligations to independent power producers.

The prepayment of foreign debts was historically brisk last year as the peso surged against the dollar, making it possible for Philippine companies and the government to prepay a significant portion of their foreign obligations.

The strength of the peso allowed both the public and the private sector to prepay $3 billion worth of foreign debt in 2007, the BSP said, adding that this was the highest prepayment level since the peso began its often rapid depreciation after the Asian crisis.

The BSP revealed that the public sector paid a total of $1.12 billion while private corporations with foreign obligations prepaid a total of $1.875 billion.

The private sector continued to prepay some of its foreign obligations when corporations pared off an additional $245 million in December alone.

The BSP said the prepayment of the country’s foreign debts in 2007 has reduced its external debt ratios to sustainable levels.

The proportion of the country’s external debt to the gross domestic product (GDP) had declined from a high of 54.9 percent in 2005 to only 40.4 percent at the end of the third quarter in 2007. – Des Ferriols