The Philippines raised the equivalent of $750 million from a sale of 10-year peso bonds overseas as it seeks to lower interest expenses and retire costlier dollar debt.
The peso notes, which will be settled in dollars, were sold at a yield of 3.9 percent, about 25 percent less than similar- maturity securities in the domestic market and below the indicative rate of 4.1 percent, according to a government statement today. The proceeds will be used to redeem global bonds denominated in euros and the U.S. currency, it said.
“The transaction allowed global investors the opportunity to participate in the impressive growth story of the Philippine economy, which is considered today to be one of the safest emerging-market sovereigns to invest in,” Manila-based Finance Secretary Cesar Purisima said in a statement today.
President Benigno Aquino has won upgrades to the nation’s credit ratings this year from Moody’s Investors Service and Standard & Poor’s as he takes steps to reduce the budget deficit and lure foreign cash. An agreement with Muslim rebels in Mindanao last month aimed at ending a four-decade insurgency in the south of the country may also improve investor sentiment.
Investors bid for 7.2 times the amount on offer, which newly appointed Philippine Treasurer Rosalia De Leon said was originally slated for as much as $1 billion. Funds from the U.S. accounted for 41 percent of the sale, Asia 30 percent and Europe 29 percent, the statement said.
“We still like the Philippines given the improving fundamentals,” Wee-Ming Ting, Singapore-based head of Asian fixed-income at Pictet Asset Management, which oversees more than $24 billion in emerging-market debt globally, said in an interview yesterday. “We believe Philippine bonds overall will do well, including this global peso bond.”
The government cut the issuance size after deciding to buy the additional foreign currency for the debt purchase from the central bank, De Leon, who previously held the job of finance undersecretary, said today. International reserves in the Philippines reached a record $82.1 billion in October, more than double what they were at the end of 2008.
“The yield would have stayed at 3.9 percent even if we got $1 billion,” De Leon said in an interview today from Manila. “We have a lot of cash, it would help Bangko Sentral ng Pilipinas with the peso if we tap the reserves.”
Bangko Sentral Deputy Governor Diwa Guinigundo said in a text message this week that the authorities have been “very vigilant” in curbing volatility in the peso. Prolonged currency appreciation could be “destabilizing,” he added. The peso has gained 6.6 percent this year, the second-best performance among 11 of Asia’s most-traded currencies, data compiled by Bloomberg show.
“Future losses from the appreciation of the peso on the central bank’s holdings of dollar-denominated assets will be reduced once they sell those dollars,” Joey Cuyegkeng, an economist in Manila at ING Groep NV, said in an interview today.
The government hired Credit Suisse Group AG, Deutsche Bank AG and HSBC Holdings Plc to manage the bond sale and debt buyback, according to an official statement. The repurchase offer will expire on Nov. 15 at 5 p.m. New York time and settlement is Nov. 27, it said.
The Philippines raised $1.25 billion from its second sale of peso-denominated bonds in the international market in January 2011. The 25-year notes were issued at 6.25 percent, or 185 basis points lower than rates in the domestic market at that time. The securities have since returned 19 percent. A basis point is 0.01 percentage point.
The nation’s debt rating was raised to Ba1, one step below investment grade, by Moody’s on Oct. 29, while S&P boosted its ranking to the equivalent level of BB+ in July.
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