The Philippines will spend $1.46 billion buying back foreign-currency bonds to help reduce interest payments and extend debt maturity, Treasurer Rosalia de Leon said.
The Asian nation expects to cut annual interest costs by $53 million through repurchasing dollar- and euro-denominated bonds due mostly from 2014 to 2016, de Leon said in a phone interview today. The government will fund the repurchase with proceeds from an overseas sale this month of $750 million worth of 10-year peso-denominated bonds and with dollars bought from the central bank, she said.
The buyback and peso bond sale let the government “manage its external liabilities through the redenomination of a portion of the external debt into the local currency,” Finance Secretary Cesar Purisima said in a statement today.
“The exercise will also reduce interest costs, avoid bunching up of maturities, and extend the duration profile,” de Leon said in the statement.
The $225 billion Philippine economy is reducing its budget deficit, extending debt maturity and cutting foreign-currency risks in pursuit of an investment-grade credit rating. President Benigno Aquino’s administration has conducted bond exchanges, debt repurchases and peso-bond sales to overseas investors since starting a six-year term in June 2010.
About $3.8 billion of bonds qualified for repurchase were offered by investors, de Leon said. The $1.46 billion buyback cost includes accrued interest on top of the bonds’ original price of $1.2 billion. Last year, the Philippines spent $1.7 billion buying back $1.3 billion worth of debt.
Record Dollar Reserves
Bangko Sentral ng Pilipinas also stands to gain from the government’s plan to buy dollars from the nation’s reserves, de Leon said. The Philippines’ international reserves climbed to a record $82.09 billion in October after the peso rose 1.3 percent against the dollar that month.
The local currency appreciated to 41.05 per dollar on Nov. 8, its strongest level since March 2008. It fell 0.2 percent yesterday to 41.335.
The Philippines’ debt rating was raised to Ba1, one step below investment grade, by Moody’s Investors Service last month, putting it on par with assessments by Standard & Poor’s and Fitch Ratings.
Credit Suisse Group AG, Deutsche Bank AG, and HSBC Holdings Plc are joint global coordinators for the transaction. Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Standard Chartered Plc and UBS AG are joint dealer managers.