JBIC to guarantee $1-billion Samurai bonds

MANILA, Philippines - The Philippines and the Japan Bank for International Cooperation (JBIC) may finally sign a guarantee agreement next month for the proposed Samurai bonds, Finance Secretary Margarito Teves said yesterday.

The government is looking at issuing between $500 million and $1 billion in Samurai bonds, so-called because these are yen-denominated bonds issued in the Japanese financial market by a foreign government or company.

Teves and JBIC president Hiroshi Watanabe met on Wednesday to firm up the provisions of the guarantee agreement which has been the subject of negotiations between the two parties since June last year.

“Most likely the signing of the guarantee agreement will be in February,” Teves said, adding that the government and JBIC need enough time to complete the documentation requirements. 

In an interview on the sidelines of a forum on the financial crisis yesterday, JBIC president and chief executive Hiroshi Watanabe said they are prepared to guarantee up to ¥100 billion of the bond issuance.

JBIC likewise urged the Philippines to take advantage of private placements as it would result in lower or cheaper costs for its loans.

“The Philippines might have a road show in Tokyo by February,” Watanabe said.

Once the government and JBIC sign the guarantee agreement, Teves said the Philippines can proceed with the bond sale, proceeds of which would be used to plug its widening budget gap.

However, he said the Finance Department’s International Finance Group led by Undersecretary Rosalia de Leon and National Treasurer Roberto Tan would have to determine the right time to issue the bonds.

The government is considering selling the bonds through a private placement which would cater mostly to institutional investors.

A private placement is a direct offering of securities to certain investors. For this particular type of transaction, the government is looking at offering the bonds to institutional investors such as insurance companies and pension funds.

On the other hand, a public offering of bonds would entail a lot of documentary and disclosure requirements. It usually caters to retail investors.

In May 2009, JBIC offered guarantees worth up to ¥500 billion for developing countries in Asia, with ¥150 billion allocated for Indonesia alone.

In June last year, the Philippines and JBIC signed a memorandum of understanding (MOU) for the planned Samurai bonds issue.

Under the MOU, JBIC would guarantee 95 percent of the present value of all principal and interest payments.

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 ¥50 billion.

Last week, the government sold $1.5 billion in dollar-denominated bonds, making it the first Asian sovereign debt issuer for 2010.

Following the sale of $1.5 billion in dollar-denominated bonds, the government still needs to raise $1 billion to complete its commercial borrowing requirements for the year.

Fiscal authorities earlier revised the borrowing program for 2010 and are now looking at raising $2.5 billion from foreign commercial creditors from a previous program of $2 billion but maintained the plan to borrow $1.8 billion from multilateral lenders.

The government is raising funds to plug its budget deficit which already hit P272.5 billion as of end-November 2009.

The government expects the budget gap for the whole of last year to hit just slightly below P300 billion. This year, it expects the budget deficit to reach P293 billion, above the initial estimate of P233.4 billion.