RP to tap Japanese bond market

The government is considering the possibility of tapping the Japanese bond market through the issuance of some $250 to $350 million worth of yen-denominated bonds to pre-fund its deficit for 2003.

National treasurer Sergio Edeza said over the weekend that the government is taking a serious look at the Japanese bond market to determine whether it would be attractive enough either late this year or early next year.

According to Edeza, the plan under consideration was the issuance of either Shibusai bonds or Samurai bonds that would be guaranteed by the Nippon Export Investment Inc.

"The Japanese bond market has not been as affected by the recent volatility as the US dollar bond market," Edeza explained. "It actually looks more stable and we only have to look at the rates to find out whether it will be worth our while."

The government last floated Japanese bonds in 2001 amounting to about $406 million which were also insured with Overseas United Loan Insurance (OULI) from Nippon Export and Investment Insurance (NEXI). The bonds have a 10-year maturity and a coupon rate of 1.83 percent.

The NEXI OULI provides investors a fixed level of protection from political and commercial risks during the lifespan of the bonds, making risks substantially lower for investors while still offering attractive yields that are comparable Japanese government bonds.

The bond was arranged by Fuji Bank Limited, Nomura Securities Co. Ltd. and Daiwa Securities SMBC Co. Ltd. Last year’s Japanese bond issue was the Arroyo administration‚s biggest issuance in the Japanese market with the longest tenor possible and at the lowest cost.

Compared to previous Samurai bonds issued by the Philippine government, the cost of funds was trimmed by a broad margin of about three percent to 3.5 percent.

For the whole of 2003, the Arroyo administration is planning to borrow P182.766 billion to help bridge its programmed deficit amounting to P142.1 billion.

Next year’s borrowing plan would be at least P30 billion more than its 2002 borrowing amounting to P155.729 billion that it planned to borrow this year.

The planned borrowing would include P118.450 billion worth of bonds that would be issued next year as well as P38.308 billion worth of project loans and P26.008 billion worth of program loans.

Excluding amortization costs of about P86.646 billion, net foreign borrowing for 2003 would be P96.120 billion.

Based on the 2003 borrowing program, the biggest increase was on project loans as the government prepares for the 2004 presidential elections which, according to sources, historically perks up government spending on high-profile infrastructure projects.