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Philippines May Swap New Dollar Debt for Older Notes, Treasurer Tan Says
The Philippines plans to exchange new longer-dated, dollar bonds for existing securities with shorter maturities in its first foreign-currency debt swap in four years, to free up more cash for economic stimulus.
“The liability management thrust is aimed at extending duration, minimizing bunching and gaining cash flow relief as well as present value savings,” Treasurer Roberto Tan wrote in a mobile-phone message yesterday. The government had received unsolicited offers from banks seeking to arrange the transaction and these will be studied, he said, without giving a timeframe.
The nation’s last dollar debt exchange was in September 2006, when it issued about $1 billion of new bonds due in 2024 and 2031 for shorter-dated notes, according to Bloomberg data. It had also engaged in peso debt exchanges.
Swapping shorter-dated debt with longer-dated notes will help Finance Secretary Cesar Purisima stretch the government’s average debt maturity closer to 25 years, from the current 10 years. That will free funds to boost government spending, attain faster economic growth and narrow the budget deficit from a record during the six-year term of President Benigno Aquino.
“We’d like to see the first 10 years of our maturity to be in pesos so we won’t be as vulnerable to external shocks,” Purisima said in a July 27 interview. “We’ll continue to tap the dollar market for the longer end of our debt management.”
Extend Maturities
The Philippines has $11.6 billion worth of dollar debt maturing from 2011 to 2020, based on data compiled by Bloomberg. A dollar debt exchange is one of the “planned transactions” this year along with the nation’s first sale of peso notes overseas, Tan said.
President Benigno Aquino’s administration will first need “clearances” from the central bank on those plans, the treasurer said.
“There’s going to be demand for this because given the excess liquidity in financial markets, international investors are in search of higher yields,” said Philippine National Bank Treasurer Ricky Cebrero. “There is going to be yield pick up as investors shift longer. Low interest rates and an improving sentiment on the Philippines cuts the risks for investors, allowing them to go longer,” Cebrero said.
The average spread on Philippine dollar bonds has shrunk to 182 basis points, or 1.82 percentage points, above similar- maturity Treasuries this week, 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 281 basis points as of July 29.
Peso Global Bonds
The administration of Aquino, who started June 30, aims to beat its target for economic growth of as much 6 percent this year and meet the high end of next year’s 7 percent to 8 percent goal, Economic Planning Secretary Cayetano Paderanga said on July 28. An eight percent growth will be the fastest pace in three decades, according to data compiled by Bloomberg.
The Philippines plans its first overseas sale of peso notes due in five to 10 years next quarter, Purisima said this week. It will offer similar yields as local debt and will be settled in U.S. dollars at the prevailing exchange rate, he said.
“In our books it will be a peso liability,” Purisima said.
The planned issue of global peso debt will “follow the legal and tax structure” of foreign-currency debt, Tan said on July 8. Buyers of the nation’s dollar bonds do not pay the 20 percent withholding tax imposed on investors in local securities.
To contact the reporter for this story: Clarissa Batino in Manila at cbatino@bloomberg.net.
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