RP to pay $500-M debt in advance

The Bangko Sentral ng Pilipinas (BSP) will pay $500 million worth of debt in advance next month, using its foreign exchange reserves, BSP Governor Amando Tetangco Jr said yesterday.

Tetangco said the decision took into consideration the higher level of gross international reserves (GIR) and the continuing foreign exchange inflows that have improved the BSP’s external position.

"At the same time, the prepayment will enable the BSP to save on interest expense," he said.

According to Tetangco, the loan facility was originally scheduled to mature in October 2006.

The debt consists of a $395.5 million loan from commercial lenders and $104.5 million of floating rate notes, Tetangco said.

The bank’s foreign exchange reserves, which are in dollars, Japanese yen and in gold, reached a record $20.58 billion in February, boosted by the government’s $2.1 billion bond sales in January.

The government plans to cut its debt to the equivalent of 56 percent of gross domestic product (GDP) in 2008, by which it also aims to have wiped out the budget deficit. The ratio fell to 72 percent in 2005 from 79 percent in 2004.

The Bangko Sentral ng Pilipinas last year borrowed part of the funds it used to pay maturing debt to avoid depleting its foreign exchange reserves. On Nov. 15 it borrowed $500 million from 18 commercial lenders to help pay $800 million in debt.

Of the $500 million, $375 million will mature in five years and $125 million in three years. Standard Chartered Plc, Sumitomo Mitsui Banking Corp., Calyon, HSH Nordbank AG and ING Groep NV arranged the loan.

Standard & Poor’s and Fitch Ratings in February raised the outlook on the nation’s debt to stable from negative, citing the narrowing budget deficit. S&P rates the government’s long-term foreign-currency debt BB, three rungs below investment grade.

Fitch’s rating is one step higher than S&P.