RP, JBIC ink MOU on $1-billion 'Samurai' bonds

MANILA, Philippines – The Philippines and the Japan Bank for International Cooperation (JBIC) signed yesterday a memorandum of understanding (MOU) on the country’s planned issuance of up to $1 billion worth of ‘’Samurai’’ bonds.

Under the MOU, which representatives of the two parties signed in Tokyo, JBIC would provide guarantee to the planned issue, a move that would make the deal more attractive.

Finance Secretary Margarito Teves, who is in Japan as part of the government’s state visit, has been quoted as saying that the Philippines may borrow as much as $1.5 billion.

Fiscal authorities have yet to finalize the schedule of the sale and the exact amount to be raised.

Samurai bonds are yen-denominated bonds issued in the Japanese financial market by a foreign government or company.

Earlier, National Treasurer Roberto Tan said he is optimistic that Japanese investors would find the Samurai bonds attractive because of the JBIC guarantee.

The Philippine government hopes such a loan will be cheaper than raising retail bonds locally, but a Japanese fund manager doubted investors would be interested unless the guarantee was ironclad.

“It would be very difficult for Japanese investors to buy bonds from any country whose fiscal health is deteriorating. To tell you the truth, the Philippines won’t be able to sell Samurais on its own now,” said a senior fund manager at a Japanese investment management firm.

“A JBIC guarantee would make a lot of difference, although the bank needs to give a 100 percent guarantee to the Samurai bonds so investors would not have to take risk.”

In 2000, during the time of former Finance Secretary Jose Pardo, the government sold Samurai bonds to finance crucial infrastructure projects.

Japan earlier announced that it is setting aside ¥6 trillion or $61.54 billion to help countries hit by global economic crisis.

It announced during the recent Asian Development Bank (ADB) annual meeting in Indonesia that it would encourage developing countries’ efforts to regain access to international markets despite the worldwide turmoil.

Japan had agreed to provide guarantees totaling up to Yen 500 billion for Samurai bonds issued in the Japanese bond market by Asian developing countries.

As part of this pledge, Japan had already agreed to help Indonesia issue up to $1.5 billion of Samurai bonds with JBIC providing a guarantee. Aside from the issuance of Samurai bonds, the government is also considering said other fund-raising options for the government such as tapping the commercial market again in the latter part of the year or increasing the availment of official development assistance (ODA) and issuing retail treasury bonds.

The government needs to raise funds to finance a swelling budget deficit, widened by the prolonged impact of the global financial turmoil.

The Development Budget Coordination Committee (DBCC) raised the budget deficit ceiling to a record level of P250 billion or 3.2 percent of gross domestic product instead of the revised P199.2 billion or 2.5 percent of GDP.

The DBCC raised the deficit ceiling following a downward revision in the  GDP growth target for 2009 to a range of between 0.8 percent and 1.8 percent instead of the revised 3.1 percent to 4.1 percent. GDP expanded by only 0.4 percent in the first quarter of the year due to the prolonged impact of the global financial meltdown.

The JBIC has earlier established the Market Access Support Facility to “encourage efforts to regain access to international markets by Asian developing countries that have regularly raised funds through sovereign bond issuance in international financial markets but are temporarily unable to do so due to the currently financial turmoil,” the Japanese financial institution said.

“The Parties have agreed that the proceeds from the Samurai Bonds guaranteed by JBIC shall be utilized by DOF (Department of Finance) for general budget to respond to global financial crisis,” the MOU said.

“The Parties have agreed to engage in good faith discussions to finalize the terms and conditions of the relevant agreements for each bond issue and guarantee transaction,” it said.