Market gobbles up offer at all-time low coupon of 3.95%
MANILA, Philippines - The Philippines raised $2 billion in dollar denominated global bond offering that has attracted about $13.5 billion of orders or well above the target offer.
The country priced the 25-year bonds at an all-time low coupon of 3.95 percent, about 25 basis points tighter than its initial price guidance of 4.2 percent.
The Philippines is the first Asian country to tap the international bond market in 2015 with order reaching $13.5 billion despite an economic slowdown in key global economies.
Investors from the US purchased 47 percent or nearly half of the bonds while Asian investors accounted for 41 percent and Europeans 12 percent.
The Philippines has a track record of selling global bonds early in the year to support majority of its annual foreign debt requirement and obtain favorable borrowing costs.
The bonds came with a switch tender offer for 15 series of dollar denominated bonds maturing between 2016 and 2034 as part of the government’s proactive liability management program. This arrangement allows the Philippine government to buy back a series of existing bonds at a specified bid price and replace them with new debt papers.
Aside from providing investors with the opportunity to sell their debt holdings, the switch tender strategy also allows the issuer to reduce interest payments.
Finance Secretary Cesar Purisima said the success of the bond issue reflects the country’s strong economic fundamentals and track record.
“This is reminiscent of the award-winning one-day accelerated switch tender offer conducted in January last year, hailed by FinanceAsia to be an innovative case of proactive liability management…It took courage and conviction to pursue this strategic transaction in the midst of global market volatility,” Purisima said.
Yields on bonds have been on a downward trend as investors are increasingly getting interested in the Philippines given the string of credit rating upgrades it received from major global debt watchers.
Of the $2 billion issued by the government, $1.5 billion was used to switch and retire old bonds. The remaining $500 million in new money, on the other hand, will be used for funding the budget.
“We continue to pursue liability management transactions that provide opportunities to reduce high coupon debt while achieving interest expense savings which the government can instead use for more inclusive initiatives,” Purisima said.
Deutsche Bank and HSBC served as joint global coordinators. They also acted as joint bookrunners alongside Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, Standard Chartered Bank and UBS.
National Treasurer Rosalia De Leon noted that the country attracted new name investment grade-only investors in this transaction.
“This robust response from the international markets reflects that our manifest confidence in the strength of the Philippine economy and liability management strategy is very well placed,” she said.
“Despite the volatility we have seen at the start of the year, we continue to see strong support by investors in our bond program, which enabled the Republic to achieve a stronger fiscal position for the Philippines. The series of liability management programs has significantly reduced debt repayment risks”,” De Leon said.