Bloomberg News

Philippines Plans to Offer 10-, 20-Year Bonds in Debt Swap

June 01, 2011

(Adds trader’s comment in fifth paragraph)

June 1 (Bloomberg) -- The Philippines plans to issue new local-currency bonds maturing in 10 and 20 years and exchange them for existing shorter-dated notes, Deputy Treasurer Eduardo Mendiola said in an interview.

“We will try to pursue an exchange this month,” Mendiola said by phone today from Manila. State-owned lenders Development Bank of the Philippines and Land Bank of the Philippines have been hired to arrange the swap, he said.

The government will probably offer 60 billion pesos ($1.4 billion) each of the 10- and 20-year notes, the deputy treasurer said. The Philippines completed in December its largest bond exchange program when it issued 185 billion pesos of 10- and 25- year bonds in a swap and sold 15 billion pesos of debt due 2035 to new investors.

President Benigno Aquino, who took office in June 2010, is seeking to stretch bond maturities and cut debt-servicing costs in a nation that has had a budget deficit for 22 of the last 26 years. The government also wants to deepen the market for long- term funding needed to build roads, ports and railways.

“The market will always welcome a chance to hold more liquid bonds,” said Lito Mercado, head of trading at Rizal Commercial Banking Corp. in Manila. “Now is a good time because inflation concern has eased and liquidity remains ample.”

‘Plain Vanilla’

The yield on the 7.375 percent debt due March 2021 rose five basis points, or 0.05 percentage point, to 6.35 percent as of 12:11 p.m. in Manila, according to Tradition Financial Services. It peaked at 7.50 percent when the security began trading on March 2.

“This time, the plan is for a plain vanilla swap,” Mendiola said, adding they probably won’t be raising new funds unlike in December. The government had a budget surplus of 61 million pesos in the first four months of this year, compared with a 131.80 billion peso deficit in the same period of 2010.

The Philippines, which has held debt swaps for both local currency and dollar-denominated notes, is exploring the possibility of offering peso-denominated global bonds in exchange for dollar notes, Treasurer Roberto Tan said in January.

--Editors: James Regan, Ven Ram

To contact the reporter for this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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