Government signs guarantee deal for $500-million bonds

MANILA, Philippines - The government is expected to have signed yesterday a guarantee agreement with the Japan Bank for International Cooperation (JBIC) for at least $500 million worth of Samurai bonds, moving it a step closer to issuing the yen-denominated bonds.

The signing of the agreement was scheduled yesterday afternoon in Japan, National Treasurer Roberto Tan said yesterday. Philippine Ambassador to Japan Domingo Siazon Jr. is expected to sign the agreement on behalf of the Philppines.

Under the agreement, JBIC would guarantee 95 percent of the issue.

The actual launch is expected to take place on Feb. 23.

“There are discussions on that,” Tan said.

For now, the government is looking at selling at least $500 million worth of Samurai bonds but Tan said the amount can go up to $1 billion if there is strong demand from Japanese investors.

The government has additional commercial borrowing requirements of roughly $1 billion this year after raising $1.5 billion from the sale of dollar-denominated bonds last month.

It earlier raised its 2010 commercial borrowing requirements to $2.5 billion from $2 billion previously following a revision in its budget deficit ceiling for the year to a whopping P293 billion from the already revised P233.4 billion. Borrowings from multilateral lenders will remain at $1.8 billion as earlier programmed.

The sale of yen-denominated bonds, which was originally slated for last year, was moved to this year after the government and JBIC failed to reach a final deal on guarantee costs.

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.

Meanwhile, government wants to provide sweeteners to the proposed retail treasury bonds (RTBs) for overseas Filipino workers (OFWs) through a special tax treatment.

Tan said what the government wants is to absorb the income tax due on the bonds to make it more attractive for overseas Filipinos to invest in the proposed debt paper. “You have to give them special treatment,” Tan told reporters.

He said the government is now looking at the legal issues of providing tax perks to the proposed RTBs for OFWS even if this would be issued in the domestic market. He said that Philippine bonds issued offshore are tax exempt so the same treatment may apply considering that the RTBs would cater to Filipinos abroad.