Philippines borrows over P122 billion in largest euro bond sale

• Apr 22, 2021

MANILA, Philippines — The Philippines raised around P122 billion in new debt on its second offshore fund raising activity this year meant to help foot the bill for its costly coronavirus programs.

In a statement early Thursday, the Bureau of the Treasury said the €2.1 billion euro-denominated global bonds were sold in three tenors: €650 million each of 4-year and 12-year papers and €800 million of 20-year securities. 

This was the government’s biggest foray so far in the European bond market, the Treasury said. The transaction is expected to settle on April 28.

Demand for the bonds reached as high as €6.2 billion, nearly triple the original size of the offer. This, in turn, brought down borrowing costs for the government with Finance Secretary Carlos Dominguez III taking this as an indication of investor optimism on the country’s recovery prospects.

“The Philippines’ successful return to the international capital market for the second time this year reflects the investor community’s confidence in the country’s prospects for a strong recovery from the prolonged pandemic,” Dominguez was quoted as saying in the statement.

Interest charged for the bonds, as measured by the coupon rate, stood at 0.25% for the 4-year securities while the 12-year papers fetched a higher 1.2%. The longest-dated bond due in 20 years was charged a 1.75% coupon rate. 

The bond sale came nearly a month after the government sold ¥55 billion (P24.2 billion) worth of Japanese yen-denominated “Samurai” bonds on March 30. Plans are also underway to tap the US bond market “before rates skyrocket” as the finance chief had earlier indicated. 

Debt incurred from the euro global bond offer will add to growing government liabilities capped at P3 trillion this year. Proceeds from these debts will be used to replace maturing obligations and fund state programs, including that which aim to counter the pandemic’s impact.

Borrowings would grow as the budget deficit is seen to widen to a record of P1.78 trillion this year, equivalent to 8.9% of economic output. For the pandemic alone, finance department data showed the national government has incurred $12.3 billion in foreign obligations as of April 8, and the latest bond sale would only add to that debt pile.

Increasing reliance on debt as tax receipts fall has prompted economic policymakers to buck calls for a bigger fiscal stimulus, despite Metro Manila and nearby urban areas going back to lockdown due a new surge in infections and hampering economic activity. Amid criticisms of the state’s fiscal approach, Dominguez said the “successful” bond offer means investors are approving of the government’s crisis strategy. 

“Investors apparently believe we have what it takes to ride out the COVID-19 crisis on the strength of the fiscal discipline,” he said.

Source: https://www.philstar.com/business/2021/04/22/2092985/philippines-borrows-over-p122-billion-largest-euro-bond-sale