The Philippines is selling $1.5 billion of 25-year bonds as policy makers accelerate government spending to support economic growth.
The bonds will be priced to yield about 5 percent, according to a banker with knowledge of the deal who declined to be identified because the information isn’t publicly available. Final pricing will be announced later today, he said.
Brazil and Mexico have sold global bonds this year at record-low yields, while European nations are struggling to contain a sovereign-debt crisis. Standard & Poor’s raised the outlook on the Philippines’ BB debt rating to positive last month, signaling a possible upgrade from the second-highest junk grade. Fitch Ratings lifted Indonesia to investment grade last month as it lowered France’s rating outlook and put Spain and Italy on review for a downgrade.
“There will likely be quite solid demand for the Philippines’ dollar bonds,” said Takahide Irimura, the Tokyo- based head of emerging-market research at Kokusai Asset Management Co., which oversees about $52 billion of assets. “Credit ratings in Asia’s major developing nations are improving, some developed countries’ ratings are moving in the opposite direction.”
A 5 percent yield would exceed the rate on U.S. Treasuries due February 2026 by 258 basis points, or 2.58 percentage points, according to data compiled by Bloomberg. Brazil sold $750 million of notes due 2021 to yield 3.45 percent, 150 basis points more than similar-maturity Treasuries, and the 3.71 percent yield Mexico paid on $2 billion of 10-year bonds was 175 basis points higher than the rate on U.S. debt.
The proceeds of the Philippine bond sale will help President Benigno Aquino boost spending on roads, ports and waterworks to spur economic growth as Europe’s debt crisis hurts exports.
The yield on the Philippines’ existing 5.5 percent March 2026 dollar notes rose two basis points to 4.40 percent today, according to prices at Royal Bank of Scotland Plc. That’s 198 basis points more than the rate on U.S. Treasuries due February 2026, according to data compiled by Bloomberg.
The yield premium (JPEMSOSD) investors demand to hold developing nations’ dollar bonds rather than Treasuries was 368 basis points yesterday, up from 241 a year earlier, according to an index compiled by JPMorgan Chase & Co.
The Philippines has sold global bonds every January in the last six years. Deutsche Bank AG, Standard Chartered Plc, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co. and UBS AG are arranging this month’s sale, Finance Undersecretary Rosalia de Leon said in a phone interview today.
Indonesia hired HSBC, JPMorgan and Standard Chartered Plc for a benchmark sale of dollar bonds in 2012, a person familiar with the matter said in November.
The Philippines is ready to start 141.8 billion pesos ($3.2 billion) worth of infrastructure projects this month, Budget Secretary Butch Abad said on Jan. 2. That’s equivalent to 78 percent of the total budgeted for public works spending this year. The country’s economy expanded 3.2 percent in the third quarter, while government spending fell 7.3 percent in the first nine months of 2011. Exports dropped 15 percent in October, sliding for a sixth month, official figures show.
This year’s budget deficit is expected to widen to 286 billion pesos from an estimated 150 billion pesos to 180 billion pesos in 2011 on public works spending, Abad said in an interview last month. The shortfall was 96.3 billion pesos in the first 11 months of last year. The Philippines has no overseas debt maturing this year, according to data compiled by Bloomberg.
The government plans to raise more than $2 billion from overseas bond sales in 2012 and about 75 percent of its debt sales will be in the domestic market, it said in July.
The Philippines sold $1.5 billion of 15-year dollar- denominated bonds in March 2011 and in January of last year raised $1.25 billion by selling 25-year peso securities to global investors. It bought back $1.3 billion worth of foreign- currency debt in October.
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