Philippines $6.5 Billion Debt Swap May Include New 25-Year Bonds

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The Philippines plans to offer as much as 300 billion pesos ($6.5 billion) of bonds in a debt swap as it seeks to lengthen maturities amid record-low inflation.

The target is to conduct the exchange before the U.S. starts raising interest rates, Treasurer Roberto Tan said in a phone interview from Manila Thursday. New 20- or 25-year notes, and possibly 10-year securities, will be offered to replace shorter-maturity illiquid debt, he said. Futures show a 50 percent chance the Federal Reserve will tighten policy at the next meeting in September and 75 percent odds before year-end.

“We want to refinance our short-term maturing obligations while cleaning up the yield curve and taking away illiquid” securities, Tan said. “This is an opportunity for those that would like to move to longer-term debt.”

Philippine consumer prices rose 0.8 percent in July from a year earlier, one of the lowest inflation rates in Southeast Asia, barring those in the midst of deflation. The government’s last debt swap for 140.4 billion pesos of 10-year bonds in August last year, when inflation stood at 4.9 percent, received orders for more than 200 billion pesos.

Existing bonds fell Thursday. The 20-year yield climbed 23 basis points to 4.62 percent, based on midday data from Philippine Dealing & Exchange Corp. The yield on the nation’s longest-maturity outstanding notes due in 2037 was at 4.72 percent on Wednesday, according to Tullett Prebon Plc.

The Philippines hired Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc and five local institutions for the swap, according to Roberto Juanchito Dispo, the president of First Metro Investment Corp. which is one of them. The others are BDO Capital & Investment Corp., BPI Capital Corp., state-run Development Bank of the Philippines and Land Bank of the Philippines, Dispo told reporters in Manila on Thursday.

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