Phl returning to int’l debt market with plans to sell new 25-yr bonds

MANILA, Philippines - The Philippines is returning to the international debt market with plans to sell new 25-year US dollar denominated bonds in a swap for shorter-dated notes as part of its proactive liability management strategy.

The bond offering follows a rash of credit rating upgrades received by the country from three major debt rating agencies on the back of gains in government revenue generation, spending efficiency and the improvements in public debt profile and investment environment.

In a notice issued yesterday, the government said it would issue bonds due 2040 in exchange for debt maturing from January 2016 to October 2034.

It will also offer cash for investors who decide not to buy the new bonds.

Completion of pricing is scheduled for Jan. 6 4 p.m. New York time.

The new 25-year bonds are being marketed to yield 4.2 percent, according to IFR, a Thomson Reuters publication.

National Treasurer Rosalia De Leon earlier said the government was looking to issue $750 million to $1 billion in foreign currency denominated bonds to further pare down debt.

Deutsche Bank and HSBC are joint global coordinators and are also joint bookrunners alongside Citigroup, Credit Suisse, Goldman Sachs, JP Morgan, Morgan Stanley, Standard Chartered and UBS.

The Philippines’ last foray into international bonds markets was in January 2014 when it sold $1.5 billion worth of 10-year dollar-denominated bonds to take advantage of record-low interest rates and strong liquidity.

Standard & Poors assigned a “BBB” rating to the proposed “benchmark-size” global issuance, citing the Philippines’ “strong external liquidity and net external creditor position, combined with an effective monetary policy framework, which has sustained a low inflation and interest rate environment.”

“These rating supports are weighed against a relatively low income level and fiscal constraints owing to a narrow revenue base and a shortage of basic infrastructure and government services,” S&P said.

S&P said it “may raise the sovereign credit ratings if institutional and structural reforms lead to an improved investment environment and increased growth potential, or if ongoing changes in governance and the policy environment lead us to a higher assessment of institutional and governance effectiveness.”

The rating may be downgraded “if the government’s commitment to fiscal consolidation weakens, resulting in a reversal of the downward debt trajectory, or if the external liquidity position deteriorates significantly,” S&P said.

The government is looking at sourcing  bulk or 86 percent of its borrowing requirements this year  from the local market. The balance of  14 percent will come from the overseas lenders which include a $1.25 billion in program loans from multilateral financing institutions.