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Philippines May Sell First Inflation-Linked Bonds in 2012

The Philippines may sell its first inflation-linked bonds in 2012 to increase funding options amid increased volatility in global markets, Finance Undersecretary Rosalia de Leon said today in Manila.

The nation may scrap a plan to issue yen-denominated notes this year, de Leon said, as Europe’s debt crisis and a U.S. slowdown sap demand for emerging-market assets. The government may borrow $500 million from the local market, an amount previously planned to be raised overseas, and will consider selling Samurai bonds in 2012, she said.

“We are looking at structured products for next year including inflation-linked bonds,” de Leon said. “We need to study this because there are issues like tax treatment.”

Inflation-linked securities typically have lower coupons than conventional debt because the principal increases annually at the rate of gains in the consumer-price index. Inflation in the $200 billion economy cooled to 4.7 percent in August, the slowest pace in four months, government data show.

The government had planned the first exchange of dollar bonds into local-currency debt this year and had approval from the central bank to offer as much as $3 billion in peso and dollar notes to global investors before the U.S. lost its AAA credit rating from Standard & Poor’s on Aug. 5. Finance Secretary Cesar Purisima said Aug. 11 that international markets are too volatile for a debt sale or a bond swap.

The Philippines plans to cut next year’s borrowing in domestic and overseas markets as it narrows the budget deficit, according to documents submitted to the Congress on July 26.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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