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Philippines Plans Peso Linker Before Global Bond: Southeast Asia

June 18, 2013

Philippines' President, Benigno Aquino

Philippines' President Benigno Aquino at the Malacanang Palace compound in Manila. The Philippines plans to sell inflation-protected bonds as Aquino seeks more than $17 billion of investment in roads and ports. Photographer: Julian Abram Wainwright/Bloomberg

The Philippines plans to sell its first inflation-linked bonds in the fourth quarter before returning to the global debt market in 2014 after a year’s absence, Treasurer Rosalia de Leon said.

The Treasury will meet investors including insurance companies to gauge interest in peso-denominated linkers to be offered by year-end, de Leon, 52, said in an interview at her office in Manila yesterday. The government may meet 10 percent of its funding needs overseas next year by selling $1 billion of notes and borrowing another $1 billion from lenders such as the World Bank and Asian Development Bank, she said.

“Inflation-linked bonds will allow us to lower our borrowing costs as we assure investors that we will meet our inflation (PHC2II) target,” said de Leon. “We are looking to offer modest-sized global bonds as many investors seek them.”

The Philippines will join nations from India to Thailand and South Korea in selling inflation-protected bonds as President Benigno Aquino seeks more than $17 billion of investment in roads and ports to sustain expansion in Asia’s fastest-growing economy. The notes will serve as a benchmark for local companies seeking to fund long-term infrastructure ventures, said de Leon.

“The Philippines should see demand for its inflation-protected bonds as well as its dollar bonds,” Rees Kam, a strategist at SJS Markets Ltd., a Hong Kong-based financial services company that specializes in fixed income, said by telephone yesterday. “The Philippines has an investment-grade rating and it has one of the region’s highest growth rates.”

Manage Inflows

The nation shunned the global bond market for the first time in a decade this year to help the central bank manage capital inflows that made the peso Asia’s second-best performer last year.

“We continue to hold a positive view on the Philippines,” Desmond Soon, a Singapore-based fund manager at Western Asset Management Co., which managed $459.5 billion as of March 31. “Unless there’s a significantly risk-averse environment, Philippine debt should see demand. The Philippines has not been in the market for quite some time.”

The nation’s dollar bonds returned 4.9 percent in the past year, the third-best performance in Southeast Asia, according to indexes compiled by HSBC Holdings Plc. The 5 percent dollar note due January 2037 has gained 17 percent since it was issued in January 2012, according to data compiled by Bloomberg.

Sovereign Upgrades

The economy expanded 7.8 percent last quarter, the fastest pace in almost three years, helped by record-low interest rates and inflation near the lower end of the central bank’s 3 percent to 5 percent target. Consumer prices rose 2.6 percent from a year earlier in April and May, near the slowest pace in 13 months, and Bangko Sentral ng Pilipinas expects inflation to remain within its goal until 2015.

Fitch Ratings and Standard & Poor’s rewarded the Southeast Asian nation with investment-grade sovereign rankings this year after the government narrowed its budget deficit and spent $3.2 billion in 2011 and 2012 to buy back foreign-currency debt. Central bank Governor Amando Tetangco said this month the Philippines may be closer to getting a favorable assessment from Moody’s Investors Service, which has kept the nation at the highest junk rating with a stable outlook.

Moody’s said in a June 3 report the country’s economic growth last quarter and its fiscal surplus in April are “credit positive.”

‘Another Upgrade’

“If we get another upgrade, it might be timely for us to go out again and price ourselves,” Treasurer de Leon said. The government estimates overseas borrowing, including concessional loans, will help meet 6 percent of its funding needs this year, compared with 14 percent in 2012, she said.

The funding plan is preliminary and the final numbers will be submitted to Congress along with the 2014 budget proposal in late July, she said. The Treasury will probably buy about $2 billion from Bangko Sentral to pay offshore debt this year, according to de Leon.

The Treasury is in talks with banks for the sale of peso-denominated bonds targeting individuals and is also considering offering dollar notes onshore this year, de Leon said. Regulatory approvals are being sought for the proposed retail and inflation-linked debt, she said.

Five-year credit-default swaps on Philippine securities have risen four basis points this year to 110 basis points, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated markets.

‘Under Control’

The peso fell to a one-year low last week and was the region’s worst performer after the Indian rupee in the past three months. Overseas investors pulled a net $641 million from local stocks and bonds in May, compared with net inflows of $1.13 billion in April, central bank data show.

“Inflation is under control, our fundamentals are there, growth is probably sustained in the second quarter,” de Leon said in the interview. “There’s continued source of stability in the domestic market.”

To contact the reporters on this story: Clarissa Batino in Manila at

To contact the editors responsible for this story: James Regan at

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