The Philippines has secured central bank approval to sell peso-denominated debt to global investors and dollar bonds in the local market, issues that may help reduce the government’s borrowing costs.
The government has the go-ahead to sell as much as $1 billion worth of the peso notes and up to $500 million of dollar securities, according to three officials who declined to be identified because the information isn’t public. It plans to use part of the proceeds of the global bond sale to buy back some existing dollar debt that pays a higher coupon, one of the officials said.
“This gives excess funds in the global market an outlet and an opportunity to invest in the Philippines, whose fundamentals have never been better,” said Jonathan Ravelas, the Manila-based chief market strategist at BDO Unibank Inc., the nation’s largest lender. “There’s a play on the peso appreciation too.”
The $225 billion Asian economy is narrowing its budget deficit, cutting foreign-currency risks and extending debt maturities to help win investment-grade credit ratings. The administration of President Benigno Aquino has conducted bond exchanges and sold peso-denominated notes to overseas investors since starting a six-year term in June 2010.
The Philippines is ready to hold a debt exchange or buyback if the opportunity arises, Finance Secretary Cesar Purisima said on Sept. 14. The nation may issue global peso bonds and exchange these for dollar notes or offer a buyback, Treasurer Roberto Tan told reporters yesterday.
The peso touched a four-year high of 41.358 per dollar yesterday and has strengthened 5 percent this year, a performance second only to Singapore’s dollar among Asia’s 11 most-active currencies.
The government sold the equivalent of $1 billion of 10-year peso-denominated bonds overseas in September 2010 and in January 2011 raised $1.25 billion from a similar offer of 25-year notes. Local-currency securities sold to overseas investors are exempt from a 20 percent tax on interest income.
The Philippines bought back $1.3 billion worth of foreign-currency bonds in October 2011, a move that it said would save about $165 million in interest costs.