Govt launches debt buyback, bond offer


The government on Tuesday announced a debt buyback program and a new bond offering as part of continuing efforts to manage the country’s finances.

The Bureau of the Treasury, in a notice, said the offering would be for 25-year dollar bonds due 2041. Holders of October 2016 to January 2037 bonds, meanwhile, were invited to submit offers to sell.

Investment-grade ratings of “BBB” and a provisional “Baa2” were assigned to the new bond issue, respectively, by Standard & Poor’s (S&P) Ratings Services and Moody’s Investors Service.

“The invitation is a part of the Republic’s general debt management program and its broader program to manage its external liabilities,” the Treasury bureau said.

An aggregate purchase price for the buyback has yet to be determined, but reports quoted National Treasurer Roberto Tan as saying it could cost up to $2 billion.

The invitation period for the buyback started 8 p.m., New York time, on February 16, 2015 or 9 a.m., Manila time, February 17, 2016.

The submission period was to expire at 4 p.m., New York time, February 17, 2016, or 5 a.m., Manila time, February 18, 2016, unless extended or earlier terminated.

The settlement date for accepted bonds was set at February 23, 2016, while the issue date of the new bond was set at March 1, 2016.

The maximum purchase amount and total purchase price of preferred and non-preferred offers is expected to be announced this afternoon.

Citigroup, Deutsche Bank, HSBC (B&D), Standard Chartered Bank have been tapped as dealer managers.

S&P noted the Philippines’ punctual payment of all principal and interest due on its debts, adding: “The sovereign credit ratings on the Philippines reflect our assessment of its strong external position, which features rising foreign exchange reserves and a low external debt burden.”

“These strengths are offset by the Philippines’ low income and a developing institutional and governance framework that hampers policy responsiveness,” it added.

Moody’s, meanwhile, said the (P)Baa2 rating was supported by improvements in the government’s finances given ongoing debt reduction efforts.

“The country has also weathered weaker external demand with real GDP (gross domestic product growth accelerating through 2015 on the back of stronger private consumption and government spending,” it said.

The debt watcher noted that a decline in the country’s debt burden had “coincided” with fiscal management gains.

In particular, it said reforms had led to revenue growth higher than nominal gross domestic product (GDP) growth for a fifth straight year in 2015. While state spending has increase, the deficit has remained below the targeted 2 percent of GDP “and remains narrower than that of its rating peers.”

“Against the current backdrop of volatile global capital flows, external liquidity risks for the Philippine government are limited,” Moody’s said.

“It has become less reliant on external sources of financing due to the stable funding base provided by ample onshore liquidity,” it added.

“However, the proportion of government debt denominated in foreign currency remains higher than that for many similarly rated peers, although this ratio has fallen in recent years.”


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