Govt wraps up best deal ever amid global volatility
The Philippines has successfully wrapped up its best deal ever for a 25-year global bond issue, raising $2 billion at a yield of 3.95 percent, lower than the previous coupon of 5 percent set in 2012.
The order book for the dollar bonds reached $13.5 billion, 41 percent of which came from Asia, 47 percent from the United States and 12 percent from Europe.
The yield of 3.95 percent was the lowest coupon ever issued by the government on a 25-year global bond. Earlier, the government was willing to pay 4.20 percent to investors as set in the offer’s initial pricing guidance.
The Department of Finance said that of the $2 billion proceeds, $1.5 billion will be used to switch and retire old bonds, while the remaining $500 million will be used for general purposes, including budgetary support.
Finance Secretary Cesar Purisima said the government continued to pursue liability management transactions that provide opportunities to reduce high-coupon debt while achieving interest expense savings which it can instead use for more inclusive initiatives.
“It took courage and conviction to pursue strategic transaction in the midst of global market volatility. Strong economic fundamentals and track record of well-placed deals allowed the RoP [Republic of the Philipines] to be the first issuer in the global dollar market and to execute a $2 billion 25-year bond at an all-time low coupon of 3.95 percent for the 25-year dollar bond,” said Purisima.
Budget and Management Secretary Florencio Abad said the reception of the international capital market to the government’s global bond offering was an affirmation of the international market’s increasing trust in the strength of the country’s economic fundamentals and growth prospects.
“There is dual significance to this. Of the $2 billion generated by the offering, $500 million in new money will give the national government enough fiscal space to address its budgetary requirements for the coming year,” he said.
Abad also noted that the government would be able to devote funds that would have otherwise gone to debt principal and interest payments, to urgent priority projects and programs instead.
“Thanks to the funds generated by this offering, we will find ourselves in a better position to upgrade our commuter rail system, build more schools and hire more teachers, and strengthen other government programs designed to fight poverty and catalyze economic growth,” he added.
The Budget secretary also pointed out that the improved terms was also an expression of the country’s growing reputation as a prime investment destination in Asia.
Abad also sees more investments pouring into our country with its improving risk profile due to macroeconomic and political stability.
“This will mean cheaper credit for our banks and a lower cost of doing business, besides more employment and business opportunities for Filipinos,” he added.
Treasurer of the Philippines Rosalia de Leon, on the other hand, said the international markets’ response to the offering reflects confidence in the strength of the Philippine economy.
“Notably, we attracted new name investment grade-only investors in this transaction,” she said.