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DOF highlights PH’s ‘successful’ bond issuances in 2018

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By Chino S. Leyco

The Department of Finance (DOF) said yesterday that the Philippines’ successful bond issuances in the offshore debt markets last year underscore the strong confidence of the international business community in the nation’s growth narrative.

Finance Secretary Carlos Dominguez III / Manila Bulletin

Finance Secretary Carlos Dominguez III
(MANILA BULLETIN FILE PHOTO)

In a statement, Finance Secretary Carlos G. Dominguez III said the tight spreads of these bond issuances also illustrate confidence in the way the Duterte administration has soundly managed the country’s fiscal program.

For instance, he said, the $2-billion 10-year global bonds issued in January in 2018 received a tight spread of 37.8 basis points over the US Treasuries, while the RMB 1.46-billion three-year Panda bonds floated in March fetched a spread of only 35 basis points over the benchmark.

When the Philippines returned in August to the yen-denominated Samurai bond market after an eight-year hiatus, its multi-tranche JPY 154.2-billion transaction or the equivalent of $1.39 billion, yielded a weighted average spread of 34.7 basis points above benchmark, Dominguez noted.

Dominguez said that with global uncertainties persisting as a result of the US Federal Reserve’s decision to continue raising interest rates, he had instructed National Treasurer Rosalia de Leon to move the timelines of future bond issuance ahead of schedule.

The finance chief also said that with the positive and overwhelming response to the Philippines’ Panda and Samurai bond issuances, the government is likely to return to these markets every 12 to 18 months from hereon to establish a regular presence.

“Because of all the announcements and all the uncertainties that are going to start hitting more, impacting the market more, (it’s) better to bring the issuance forward earlier,” Dominguez said.

He said participating in the Panda and Samurai bond markets, as well as exploring other debt securities markets in and outside of Asia, would help diversify the government’s borrowing portfolio as it rolls out more of its “Build, Build, Build” infrastructure projects.

“We told bankers that our policy now is not to be absent from any major market for long periods,” Dominguez said in a recent press briefing. “For the Samurai, we are going to come back within 12 to 18 months from August. In China, we will come back to the market again within 12 to 18 months from last March. And we are going to explore doing something in England.”

In addition, the Philippines regularly taps Official Development Assistance (ODA), which offer concessional borrowing rates, largely from Japan and China to help fund its high-impact “Build, Build, Build” projects.

In March, when the Philippines became the first ASEAN state to issue Panda bonds, the China Lianhe Credit Rating Co., Ltd, gave the issuance a much-desired AAA rating, which helped boost investors’ interest and lower the bonds’ yield.

Lianhe factored in the strong economic ties between Manila and Beijing and the Duterte administration’s “stable source of payment from growing government revenues” in its positive credit rating assessment for the Philippines’ planned issuance of renminbi bonds.

It said the successful implementation of President Duterte’s 10-point socioeconomic agenda, citing among them the first package of the comprehensive tax reforms–the Tax Reform for Acceleration and Inclusion (TRAIN) Law–“will help the Philippines achieve more rapid and equitable economic growth in the following years.”

The Philippines set a record in the Panda bond market as almost 90 percent was cornered by offshore or overseas buyers, with overwhelming demand pushing the coupon rate to its lowest at 5 percent.

“Of the five sovereign Panda bond issuers so far, only South Korea, rated five to six notches higher than the Philippines, was priced at a tighter spread over CDB,” according to an International Financing Review (IFR) Asia report.

The Philippines’ offering was 6.3 times covered with RMB 9.2 billion orders, which is the “biggest book and largest oversubscription of any sovereign Panda to date,” said IFR Asia.

Overwhelming demand from both onshore and offshore investors in the Samurai market also met the Philippines’ yen-denominated bond issuance last August. The Philippines was able to secure the largest issuance size of a senior Samurai bond for the year, with the bonds priced tighter than Indonesia and Mexico.

Dominguez has said that the country’s “successful return to the Samurai bond market is the latest proof of the deepening investor confidence in the Philippine economy under the Duterte presidency.

“The government’s disciplined fiscal position, along with game-changing reforms, starting with the new TRAIN Law that has modernized and simplified Philippine taxation, have created enough room for our current policy of aggressive investments not only in public infrastructure but in human capital formation as well.”

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