Philippines uses US$500m bond issue to help plug budget deficit

PUBLISHED : Friday, 10 January, 2003, 12:00am
UPDATED : Friday, 10 January, 2003, 12:00am


Related topics

The Philippines has sold US$500 million of 10-year government bonds, luring investors with an attractive yield amid concern about the reliability of some of its economic data and a downgrade from Moody's Investors Service.

But bankers familiar with the deal said the bond offer met strong demand despite some early concerns in the market.

The Philippines issued $500 million of an existing 10-year note due in 2013, priced at 96.75 per cent, or $967.50 per $1,000. The bonds carry a 9 per cent coupon and yield 9.509 per cent, or 553 basis points over United States treasuries of a comparable maturity.

Morgan Stanley, Credit Suisse First Boston and JP Morgan handled the bond sale.

The bonds were priced at a higher yield than the first $500 million batch of 2013 10-year bonds sold by the Philippines in November, which were priced at 99.205 per cent, or $992.05 per $1,000, and offered a yield of 9.125 per cent, or 507 basis points above US treasuries at the time.

The first sale was handled by HSBC, UBS Warburg and Salomon Smith Barney.

The government originally aimed to sell $500 million to $1 billion of the bonds in this round but only issued $500 million to assure adequate demand in the secondary market. The government will use proceeds to help plug a mounting budget deficit estimated at more than 200 billion pesos (about HK$29.14 billion) this year.

The bond sale came just as Moody's on Wednesday downgraded the ratings outlook on the Philippines' local-currency debt to negative, which means it could cut the Baa3 rating on the government bonds.

'The damage done to government finances from past declines in revenue performance has weakened long-term fiscal prospects,' Moody's said.

However, Moody's maintained its Ba1 long-term foreign currency debt rating and said the rating was stable.

The bond sale also came after news this week that some companies in the Philippines may have under-reported import figures that came through its free-trade zones, skewing its current account data. The government may need to adjust the figures, which show a trade surplus at present.

That news left some investors more wary of Philippine debt and might have prompted the bond underwriters to price the notes at a higher yield, analysts said.

'It was priced to sell. That's the reason the deal went through,' said a sovereign debt analyst. 'It was priced cheaper than the talk in the market. The trade numbers were a bit of a concern.'

However, Moody's said: 'Revisions in estimates of the current account balance do not reflect weakness in the balance of payments as official foreign reserves have been boosted in recent years and remain in relatively sound position in relation to near and long-term debut service obligations.'

But the underwriters were able to build a book of just above $1.1 billion, suggesting solid demand for the offer, a banker familiar with the deal said.

About 45 per cent of the bonds were sold to US investors, about 35 per cent to Asian investors and the rest in Europe.