Philippine success in offshore bond markets in 2018 underscores investor confidence

January 2, 2019

The Philippines’ successful bond issuances in the offshore bond markets in 2018 underscore the strong confidence of the international business community in the country’s growth narrative on the Duterte watch.

Finance Secretary Carlos Dominguez III said the tight spreads of these bond issuances illustrate confidence in the way the Duterte administration has managed the country’s fiscal program.

For instance, he said, the $2 billion 10-year global bonds issued last January received a tight spread of 37.8 basis points over the US Treasuries, while the 1.46 billion renminbi three-year Panda bonds floated in March fetched a spread of only 35 basis points over the benchmark.

When the Philippines returned in August to the yen-denominated Samurai bond market after an eight-year hiatus, its multi-tranche 154.2 billion yen transaction or the equivalent of $1.39 billion, yielded a weighted average spread of 34.7 basis points above benchmark, Dominguez noted.

Dominguez said with global uncertainties persisting as a result of the Federal Reserve’s decision to continue raising interest rates, he had instructed National Treasurer Rosalia de Leon to move the timelines of future bond issuance ahead of schedule.

Dominguez said with the positive and overwhelming response to the Philippines’ Panda and Samurai bond issuances, the government  is likely to return to these markets every 12 to 18 months from hereon to establish a regular presence.

“Because of all the announcements and all the uncertainties that are going to start hitting more, impacting the market more, (it’s) better to bring the issuance forward earlier,” Dominguez said.

He said participating in the Panda and Samurai bond markets, as well as exploring other debt securities markets in and outside of Asia, would help diversify the government’s borrowing portfolio as it rolls out more of its “Build, Build, Build” infrastructure projects.

“We told bankers that our policy now is not to be absent from any major market for long periods,” Dominguez said in a recent press briefing.

“For the Samurai, we are going to come back within 12 to 18 months from August. In China, we will come back to the market again within 12 to 18 months from last March. And we are going to explore doing something in England,” said Dominguez.

In addition, the Philippines regularly taps Official Development Assistance (ODA), which offer concessional borrowing rates, largely from Japan and China to help fund its high-impact "Build, Build, Build" projects.

In March, when the Philippines became the first ASEAN state to issue Panda bonds, the China Lianhe Credit Rating Co., Ltd, gave the issuance a much-desired AAA  rating, which helped boost investors’ interest and lower the bonds’ yield.

Lianhe factored in the strong economic ties between Manila and Beijing and the Duterte administration's stable source of payment from growing government  revenues' in its positive credit rating assessment for the Philippines' planned issuance of renminbi bonds.

The Philippines set a record in the Panda bond market as almost 90 percent was cornered by offshore or overseas buyers, with overwhelming demand pushing the coupon rate to its lowest at 5 percent.

“Of the five sovereign Panda bond issuers so far, only South Korea, rated five to six notches higher than the Philippines, was priced at a tighter spread over CDB,” according to an International Financing Review (IFR) Asia report.

The Philippines’ offering was 6.3 times covered with 9.2 billion renminbi orders, which is the “biggest book and largest oversubscription of any sovereign Panda to date,” said IFR Asia.

Overwhelming demand from both onshore and offshore investors in the Samurai market also met the Philippines’ yen-denominated bond issuance last August. The Philippines was able to secure the largest issuance size of a senior Samurai bond for the year, with the bonds priced tighter than Indonesia and Mexico.

Dominguez has said that the country’s “successful return to the Samurai bond market is the latest proof of the deepening investor confidence in the Philippine economy under the Duterte presidency. DMS