Philippines May Forego Global Bond Sale as It Boosts Local Debt

Photographer: Julian Abram Wainwright/Bloomberg

Pedestrians walk past a street vendor during the morning rush hour in the district of Fort Bonifacio in Manila. The Philippines is boosting domestic borrowing to help curb capital inflows that have made the peso the best-performing currency in Asia and among emerging markets in the past 12 months. Close

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Photographer: Julian Abram Wainwright/Bloomberg

Pedestrians walk past a street vendor during the morning rush hour in the district of Fort Bonifacio in Manila. The Philippines is boosting domestic borrowing to help curb capital inflows that have made the peso the best-performing currency in Asia and among emerging markets in the past 12 months.

The Philippines may shun the global bond market this year, breaking a run of sales that stretches back a decade, as it boosts domestic borrowing amid record-low interest rates, Treasurer Rosalia de Leon said.

“We would like to fund more domestically and if 100 percent is possible, why not?” de Leon said in an interview in the southern city of Samal, where she addressed a conference of fund managers. The country plans to borrow 730 billion pesos ($17.9 billion) this year, and the intention is to raise at least 80 percent of that from the domestic market, she said.

The $225 billion economy expanded at the fastest pace in two years in 2012, helped by a record-low central bank benchmark borrowing rate and inflation near the low-end of a 3 percent to 5 percent target. President Benigno Aquino’s administration is reducing the budget deficit, extending debt maturity and cutting foreign-currency risks in pursuit of an investment-grade credit rating. That upgrade may come in the first half of this year, central bank Governor Amando Tetangco said on Jan. 25.

“The domestic market can absorb the entire requirement,” said Paul Joseph Garcia, who helps to manage the equivalent of $19.2 billion at Manila-based BPI Asset Management Inc. “There’s not enough supply of government securities.”

The Philippines has been selling bonds to overseas investors each year since at least 2002, and has no maturing global bond this year, according to data compiled by Bloomberg. It sold $1.5 billion of dollar bonds last year, less than planned.

The country isn’t completely “closing its doors” to a global sale this year, de Leon said on March 2. “If there’s a need for us to reprice our credit after an upgrade, then we may do so. But we also need to get BSP approval,” she said, using the initials for the central bank, Bangko Sentral ng Pilipinas.

Capital Inflows

The Philippines is boosting domestic borrowing to help curb capital inflows that have made the peso the best-performing currency in Asia and among emerging markets in the past 12 months. BSP considers the inflows among its biggest challenges, and Finance Secretary Cesar Purisima has said the government is coordinating with the monetary authority on borrowing.

The Philippines has the highest junk rating at Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. Managing inflows would be more challenging after a shift to investment grade, BSP Deputy Governor Diwa Guinigundo said on Dec. 21.

When the government filed the 2013 budget for Congress’ approval in July, it had programmed a $3 billion global sale this year. In November, de Leon said that they wanted to cut the 2013 overseas debt-sale plan by half, and a month later signaled she may further cut this to $750 million to $1 billion.

Domestic Market

The Philippines raised 84 percent of its requirement last year at home, higher than its target as it was more favorable to borrow from the domestic market, de Leon said. This year, the government may also repurchase foreign-denominated bonds for the third year, and may exchange these for peso-denominated debt as part of liability management that has lengthened maturity and reduced foreign-currency risks, the treasurer said.

The Philippines bought $1.2 billion of its foreign-currency bonds in November for almost $1.5 billion to cut annual interest costs by $53 million, de Leon has said. In 2011, the Philippines spent $1.7 billion buying back debt.

The nation held a debt swap in September 2010, exchanging shorter-maturity dollar securities with longer-term bonds denominated in the U.S. currency. In December that year, the Philippines issued almost 200 billion pesos in new 10- and 25- year notes in a swap. It had another exchange in July 2011.

‘Compelling Advantages’

“We will continue to be opportunistic,” de Leon said. “If there are compelling advantages for us to do similar transactions, why not?”

The Philippines expects its debt to drop to 46.2 percent of gross domestic product next year from 50.9 percent in 2011, Budget Secretary Butch Abad said last week.

The yield on the 6.25 percent bond due November 2016 fell to 3.27 percent on March 1, based on midday fixing prices at Philippine Dealing & Exchange Corp. That’s the lowest for a four-year benchmark since Bloomberg started the data in May 2002. The peso closed at 40.688 per dollar last week, 5.3 percent higher against the dollar over the past 12 months.

“We are now revisiting the current methodology and in deep consultations with our stakeholders in coming up with a new fixing methodology that is more credible and transparent,” de Leon told the Fund Managers Association of the Philippines during the conference in Samal.

To contact the reporters on this story: Ian Sayson in Manila at isayson@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editors responsible for this story: Stanley James at sjames8@bloomberg.net; Darren Boey at dboey@bloomberg.net

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