Philippines Pays Record Low Yield in $2 Billion Bond Sale

  • Notes priced to yield 3.7%, less than guidance of 4%
  • Some $1.5 billion of bids for debt exchange accepted

The Philippines raised $2 billion in a sale of 25-year bonds to repay maturing debt and retire some other notes to improve the fiscal outlook before a leadership change.

The dollar-denominated securities due March 2041 were priced to yield 3.70 percent, the lowest ever for a Philippine global bond, the government said in a statement. The rate is less than the initially indicated 4 percent and eclipses last year’s unprecedented 3.95 percent yield for 25-year foreign debt.

Filipinos head to the polls in May to choose a successor to President Benigno Aquino, who is prohibited from running for another six-year term. There is no clear front-runner to replace the incumbent, who has shrunk the budget deficit and tackled corruption, while boosting growth to the fastest pace since the 1970s. Political risk is weighing on the peso, Alastair Pinder, an Asian foreign-exchange strategist at HSBC Holdings Plc in Hong Kong, wrote in a research note on Monday.

“We have been closely monitoring market conditions to ensure we can navigate against a challenging and volatile environment,” Treasurer Roberto Tan said in the statement. “The strong support that we received from our investors in this transaction is a sign of confidence on the reforms and strategies that the republic has institutionalized.”

Debt Swap

There were $8 billion of bids for the bonds, 51 percent of which came from the U.S., 32 percent from Asia and 17 percent from Europe, according to the statement. Most of the issuance will be used for an offer for investors holding debt due from 2016 to 2037 to switch to the new 25-year notes. The government accepted $1.5 billion of submissions, higher than the $1.25 billion it had said it was targeting.

“By leveraging these opportunities to reduce high-coupon debt and to extend the maturity of our debt portfolio, the country achieves valuable savings that we can use to target broad-based and inclusive growth and development,” Finance Secretary Cesar Purisima said in the statement.

The yield on the Philippines’ 3.95 percent dollar bonds due 2040 was little changed at 3.52 percent as of 12:25 p.m. in Manila. The yield has fallen 36 basis points this year. The nation’s global securities have handed investors a return of 4.3 percent in the past year, the best performance among eight Asian sovereigns after Pakistan, according to JPMorgan Chase & Co. indexes.

“The timing is good because, despite the noise on the elections and global risks, yields are generally still low,” said Jonathan Ravelas, chief strategist at BDO Unibank Inc., the nation’s largest lender. “Issuing before the elections is also a good strategy. It means whoever takes over will get the ball running from day one.”

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