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Philippines Tells Local Banks Peso Global Debt Sale to Carry Dollar Risk
The Philippine central bank told local lenders to treat their investment in a planned sale of more than $500 million of global peso bonds as part of their dollar holdings, limiting their capacity for purchases.
Philippine banks should assign the debt the same risk- weighting in their books as securities denominated in foreign currencies, Deputy Governor Nestor Espenilla said in an interview. Rafael Algarra, treasurer at Security Bank Corp. in Manila, said he is considering the implications of the rules.
“While this is peso-denominated, it is settled in U.S. dollars and all payments are indexed to the peso spot rate,” Espenilla said. “There is foreign-currency risk to the investor.”
Philippine banks have been buying global debt sales by the government, taking advantage of deposits from overseas workers and exporters to buy about 20 percent of the $1.5 billion dollar bonds the government sold in January. Union Investment and Erste Sparinvest KAG said they are interested in buying the peso debt because it is exempt from a 20 percent tax on interest payments and Asian currencies are rising.
“There’s a bullish run for Asian region assets on the view Asia will be performing better than Europe and America,” Algarra said. “Funds are flowing in the region.”
The government has central bank approval to sell up to $1 billion of 10-year peso notes to international investors, a government official said on Sept. 2. Citigroup Inc. and Deutsche Bank AG are the global coordinators for the bond sale, while Credit Suisse Group AG, Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. are the joint book runners.
New Sources
President Benigno Aquino, whose administration has projected a deficit of 325 billion pesos ($7.4 billion) this year, is seeking to fix the nation’s finances by tapping new funding sources and stretching the average maturity of its debt. Finance Secretary Cesar Purisima said this month the shortfall in 2011 may shrink to 226 billion pesos, or 2.5 percent of gross domestic product, if the economy expands 7 percent.
The Philippines plans to raise the equivalent of 193 billion pesos from overseas debt sales this year, Treasurer Roberto Tan said last month. The government sold $1.5 billion of dollar-denominated bonds and 100 billion yen ($1.2 billion) of Samurai notes in the first quarter. Peso-denominated debt will reduce risks from foreign-currency fluctuations,” Purisima told a Congress hearing last month.
Peso Gains
The peso climbed 0.3 percent to 44.11 as of 11:00 a.m. in Manila and has strengthened 9.8 percent in the past year. Exports grew 35.9 percent from a year earlier after rising 33.7 percent in June, the government said today. The currency will gain 2.6 percent to 43 by the end of next year, according to the median forecast in a Bloomberg survey of 11 analysts.
The government’s benchmark 10-year peso bond yielded 6.33 percent yesterday, and money managers at Union and Sparinvest said a minimum rate of 5.8 percent on the new debt would be acceptable.
Developing-nation issuers sold $1.8 billion of local- currency debt in global markets so far this year, the most since the same period in 2007, data compiled by Bloomberg show. Russia may sell its first ruble-denominated Eurobond in November, Deputy Finance Minister Dmitry Pankin said Sept. 8.
Aquino’s Pledge
Colombia has sold $1.3 billion worth of Colombian peso bonds in the international markets this year. Chile sold $520 million of 10-year bonds in Chilean pesos at 5.5 percent on July 30, about 60 basis points, or $24 million, less than the cost of borrowing locally, Finance Minister Felipe Larrain said.
Aquino plans to invest 200 billion pesos building roads, railways and ports to achieve the fastest economic growth in three decades by 2011 and catch up with Indonesia’s credit rating. The Philippines’ long-term foreign-currency debt ratings are Ba3 at Moody’s Investors Service and BB- at Standard & Poor’s, three levels below investment grade. Indonesia is rated one level higher at both Moody’s and S&P.
The Philippine budget deficit widened to 229.4 billion pesos in the first seven months, or 70.6 percent of the full- year target. The government has cut travel and training to limit spending and rein in the deficit, Budget Secretary Butch Abad said this month.
To contact the reporter for this story: Clarissa Batino in Manila at cbatino@bloomberg.net.
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