Philippines Starts 25-Year Dollar Bond Sale Before May Vote

  • Initial yield guidance of 4% more than secondary-market rate
  • Government has approval to sell as much as $2 billion of debt

The Philippines has started marketing 25-year sovereign dollar bonds as is seeks to retire shorter-term debt three months before an election.

The notes are being offered at an initial yield guidance of 4 percent, according to people familiar with the sale who asked not to be identified because the information isn’t public. Investors holding global securities due 2016 to 2037 are invited to switch to the new bonds or tender for cash, the Bureau of the Treasury said in a statement. The guidance is at a premium to the 3.53 percent secondary-market yield on the nation’s dollar paper due 2040.

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 in the race to replace the incumbent, who managed to shrink the budget deficit and make progress in tackling 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.

“The actual rate will come in lower than the indicative price,” said Noel Reyes, chief investment officer at Manila-based Security Bank Corp., which manages $950 million. “If you are holding dollars, where will you put that money when the U.S. may not raise interest rates any more this year, Japan has negative rates and many countries are cutting” borrowing costs, he said.

The government has approval to sell as much as $2 billion of bonds, of which around $1.25 billion will be used to buy back existing debt, Treasurer Roberto Tan said Tuesday. The Philippines last sold 25-year dollar notes in January 2015, at a yield of 3.95 percent.

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.

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