Government seeks lower guarantee fee for Samurai bonds

MANILA, Philippines -The Philippines is seeking a lower guarantee fee from the Japan Bank for International Cooperation (JBIC) for the planned issuance of Samurai bonds.

If JBIC agrees, the government may proceed with the issuance of Samurai bonds in the fourth quarter of the year.

“The main issue is the guarantee fee. We hope the guarantee fee can be reduced,” Finance Secretary Margarito Teves told reporters yesterday.

Samurai bonds are yen-denominated bonds issued in the Japanese financial market by a foreign government or company.

The Philippines and JBIC signed a memorandum of understanding (MOU) for the planned Samurai bonds last June.

Under the MOU, JBIC would guarantee 95 percent of the present value of all principal and interest payments. The Philippines could tap other parties to guarantee the remaining five percent but officials noted that nothing is final yet.

Teves said that the government and JBIC are currently in discussions to make the terms of the transaction “more competitive.”

This way, Teves said, the government would still be able to borrow at a lower cost.

“We’re looking if JBIC’s term would be competitive with the cost of the global bonds,” Teves said.

Last July 18, the government successfully raised $750 million in dollar-denominated bonds to foreign investors to plug its widening budget deficit. The country’s 2009 deficit ceiling has been raised to P250 billion from P199.2 billion previously.

Teves said JBIC is still studying the government’s request to reduce the guarantee fee.

This could take three to four weeks, he said.

The last time the Philippines tapped the Japanese Capital Market was in 2001 with the issuance of Shibosai bonds, also a form of Samurai bonds, amounting to Yen 50 billion.

Aside from the issuance of Samurai bonds, the government is also considering other fund-raising options for the government including the issuance of retail treasury bonds.

The government needs to raise funds to finance a swelling budget deficit, widened by the prolonged impact of the global financial turmoil.

The government’s budget deficit hit P30.2 billion in June from a surplus of P800 million in the same period last year.

As of end-June, the deficit swelled to P153.4 billion or more than eight times the P18 billion deficit recorded a year ago.