Private firms prepay $976-million debt in January-October

MANILA, Philippines - Companies prepaid $975.8 million worth of foreign-denominated obligations in the first 10 months of the year to take advantage of the stronger peso and lower interest rates.

“For the period January to October 2009, total prepayments amounted to $975.8 million, all by the private sector,” Tetangco said.

On the other hand, he disclosed that the public sector did not prepay any of its foreign currency debt.

The BSP has been urging companies to pre-pay their foreign-denominated financial obligations to take advantage of the strong peso and lower interest rates.

The continued appreciation of the peso against the dollar as well as the low interest regime would help companies save money through the pre-termination of their foreign-denominated debt.

Data from the central bank showed that the peso strengthened to 47.732 to $1 as of end-October this year from 48.746 to $1 as of end-October last year.

The private sector is the biggest beneficiary of the rare opportunity to reassess their liabilities and settle some obligations in order to save future debt service costs as much of the loans were acquired when the peso was significantly weaker.

Loans and other obligations normally have provisions for prepayments where the borrower could save money by either pre-terminating or pre-paying without penalties.

Prepayment of more foreign debts is among the package of measures aimed at cushioning the adverse impact of a sharply rising peso on exporters and families of overseas Filipino workers (OFWs).

Aside from easing upward pressure on the peso by increasing dollar outflows, debt prepayments also result in interest savings and reduce the country’s debt stock.

The country’s external debt fell by $1 billion to $53.9 billion in 2008 from $54.9 billion at the end of 2007 as both the public and private sector prepaid some of their outstanding foreign obligations.

Prepayments last year amounted to $3.4 billion, of which $864 million were made by the public sector.

External debt refers to all types of borrowings by Philippine residents from non-residents that were approved and registered by the BSP. This covered the borrowings of the public and private sector.