Philippines to Sell Global Peso Bond as Dollar Debt Yields Sink
Cesar Purisima, Philippines secretary of finance
Edwin Tuyay/Bloomberg
The government will probably sell local notes due in five to 10 years next quarter, Purisima said.
The government will probably sell local notes due in five to 10 years next quarter, Purisima said. Photographer: Edwin Tuyay/Bloomberg
The Philippines plans to sell peso bonds overseas for the first time to fund a record budget deficit this year, seeking to lure investors to new securities after yields on the nation’s dollar debt fell to record lows.
Aberdeen Asset Management Plc. and MFC Global Investment Management expect investors to buy the global peso debt as the administration of President Benigno Aquino, 50, pledges to build more roads, railways and ports to attain the fastest economic growth in three decades by 2011.
The government will probably sell local notes due in five to 10 years next quarter, Finance Secretary Cesar Purisima said in an interview yesterday in Manila. The Philippines plans to continue foreign-currency debt sales and offer peso and dollar bonds in exchange for older, shorter-dated debt, he said.
“We’ll definitely look at” the new bonds, said Endre Pedersen, who manages about $16 billion of Asian debt at MFC Global Investment Management in Hong Kong. “It’s another way to get exposure to the Philippines for us. If President Aquino carries out what he’s promising, then it’s encouraging.”
The average spread on Philippine dollar bonds has shrunk to 182 basis points, or 1.82 percentage points, above similar- maturity Treasuries, from 291 a year ago, according to JPMorgan’s EMBI index. That was the lowest premium since April 26. The average spread for emerging-market debt on JPMorgan’s EMBI+ index is 277 basis points.
Higher Yields
The government’s benchmark 10-year peso bond yielded 7.6 percent at Philippine Dealing & Exchange Corp. compared with 4.40 percent on the 6.5 percent dollar debt due January 2020, the lowest since the dollar bonds were first sold in July 2009.
The planned global peso bonds will offer similar yields as local debt and will be settled in U.S. dollars at the prevailing exchange rate, Purisima said. The peso strengthened 0.6 percent to 45.97 per dollar so far in 2010 and has climbed in four of the last five years.
“Peso global bonds are something we’d welcome,” said Edwin Gutierrez, who manages about $5 billion of emerging-market debt at Aberdeen Asset Management Plc in London. “The dollar bonds have fallen so much in yield and investors need relatively higher-yielding bonds. Local currency is where we see a lot of interest.”
Budget Targets
Aquino, who campaigned against corruption, took office on June 30, vowing to fight poverty, jail tax offenders and attract investments. The government estimates the budget deficit will widen to 325 billion pesos ($7.1 billion) this year from 298.5 billion pesos in 2009. The shortfall in the first half reached 60.5 percent of the target. The Philippines had deficits in 21 of the past 25 years.
The government aims to narrow the budget gap to 2 percent of gross domestic product and raise tax revenue to 16 percent of GDP by 2013 to win a debt-rating upgrade, Purisima said. Aquino’s economic managers have kept this year’s growth target in a range of 5 percent to 6 percent and raised next year’s GDP expansion forecast to a range of 7 percent to 8 percent. About 250 billion pesos is lost annually to tax evasion, he said.
This year’s deficit may widen to 4 percent of GDP from 3.9 percent in 2009, Purisima said. Tax collection last year was equivalent to about 13 percent of GDP, he said. The government plans to raise borrowing in 2010 to 766.4 billion pesos, 8 percent more than Aquino’s predecessor planned.
‘Main Risks’
“For the Philippines, the main risks remain on the fiscal side,” said Anthony Chan, the Asia sovereign strategist in Hong Kong at AllianceBernstein L.P., which oversees $458 billion globally. “We’re seeing the fiscal slippage this year.”
Aquino doesn’t intend to ask Congress for additional funding this year or to raise the deficit ceiling, Budget Secretary Butch Abad told reporters yesterday. The Philippine president said on July 26 Arroyo’s government “squandered” public funds.
Moody’s Investors Service rates the Philippines’ long-term foreign-currency debt Ba3, while Standard & Poor’s assigns a BB- rating, three levels below investment grade. Indonesia, Southeast Asia’s biggest economy, is rated one level higher at both Moody’s and S&P.
“We will get that upgrade; the sooner the better,” Purisima said. “I do believe we should probably be rated at least equal to Indonesia.”
The government sold $1.5 billion of dollar-denominated bonds, 100 billion yen ($1.1 billion) of so-called Samurai notes in the first quarter, and $500 million worth of dollar- and euro-denominated debt to Filipinos living overseas in April.
To contact the reporters for this story: Clarissa Batino in Manila at cbatino@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.
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