Philippines to Halve 2015 Global Bonds Amid Local-Debt Bias

The Philippines may offer about $750 million in global bonds in 2015, half the overseas debt it sold this year as it taps increasing domestic liquidity.

Of the 700.8 billion pesos ($16 billion) borrowing planned for next year, 86 percent, or 605.1 billion pesos, will probably be raised locally and the remaining 95.7 billion pesos from international markets, Treasurer Rosalia de Leon said in a mobile-phone message reply to questions yesterday. The offshore fundraising will include official development loans.

The nation sold $1.5 billion of 10-year dollar-denominated notes in January, returning to the global debt market after a one-year absence in 2013 when it took advantage of record-low interest rates and flush liquidity at home to help curb capital inflows. Money supply has expanded more than 30 percent since July and the government had its biggest budget surplus in 20 years in April, signaling reduced funding pressure.

“Any additional supply in peso bonds next year will be outpaced by demand among funds looking for investment outlets,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “With the risks in global conditions, it really makes more sense to borrow from the local market. Any central bank rate hike will be gradual and orderly.”

Bangko Sentral ng Pilipinas raised the rate it pays on special deposit accounts to 2.25 percent on June 19 from 2 percent, after increasing the reserve requirement ratio of local banks by a total of two percentage points at its March and May meetings to 20 percent. While the benchmark overnight borrowing rate was kept at a record-low 3.5 percent, Governor Amando Tetangco said June 20 the BSP has a “tightening bias.”

2015 Funding

The government’s economic team is discussing next year’s funding plan as part of the 2015 budget that President Benigno Aquino will ask lawmakers to approve after his annual address to Congress in July. The so-called Development Budget Coordination Committee, or DBCC, met on June 20 and maintained growth and fiscal targets for this year and next, Economic Planning Secretary Arsenio Balisacan said.

The government set a borrowing plan of 730 billion pesos for 2014, of which 620 billion pesos would be from the local market, according to Department of Finance data released in December. That compares with 735 billion pesos in 2013. The external funding plan for this year is $2.5 billion, including development loans, de Leon said at that time.

‘Policy Direction’

Philippine dollar bonds “will be supported, with limited issuance in 2015,” Joey Cuyegkeng, an economist in Manila at ING Groep NV, wrote in a research note today. The “preference for domestic financing remains as this government’s major policy direction.”

The extra yield investors demand to own the Philippines’ 4.2 percent dollar debt due January 2024 over similar-maturity U.S. Treasuries narrowed 36 basis points, or 0.36 percentage point, this year to 87 basis points, according to data compiled by Bloomberg. The notes were priced at a spread of 123 basis points when they were sold in January.

The peso was little changed at 43.805 per dollar at the close in Manila, according to Tullett Prebon Plc. The yield on the 2.125 percent local-currency bonds due May 2018 fell five basis points to 3.25 percent, falling by the most since May 27, according to Tradition Financial Services.

Budget Surplus

The Philippines posted a budget surplus of 80.9 billion pesos in April, the most since at least June 1994 when Bloomberg started compiling the data. Revenue collection in April rose 18 percent and spending fell 6 percent, the government reported June 4.

The Bureau of the Treasury may cut next quarter’s domestic borrowing from the 135 billion pesos planned for the current period, Deputy Treasurer Sharon Almanza said June 20. The third-quarter auction plan will be released before month-end.

The Philippines won investment-grade ratings from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings last year. On May 8, S&P raised the nation’s assessment to BBB from BBB-, citing President Aquino’s efforts to improve the economy and governance.

The government kept its economic-growth target of 6.5 percent to 7.5 percent this year and 7 percent to 8 percent next year, Balisacan said June 20. The DBCC decided to use an exchange-rate assumption for the peso of 42 to 45 per dollar until 2016, he said. Growth will exceed 6.5 percent starting this quarter, Balisacan said in an interview today.

Before it's here, it's on the Bloomberg Terminal.