Government sells $3 billion bonds in return to international market

MANILA, Philippines — The Philippines has borrowed $3 billion from the international debt market through the issuance of long-term dollar-denominated bonds, marking its return to the global capital markets for the third time this year.

The dual-tranche issue consists of 10.5-year global bonds priced at US Treasury spread of T+60 basis points from an initial pricing guidance of T+90 bps, with a coupon of 1.95 percent, and 25-year global bonds priced at 3.25 percent from 3.55 percent, and a coupon of 3.2 percent. The transactions are scheduled to be settled on July 6, and will mature on Jan. 6, 2032 and July 6, 2046, respectively.

The latest global bond issue is expected to secure a rating of Baa2 from Moody’s and BBB from Fitch. S&P Global Ratings on Monday assigned a BBB+ rating to the dollar-denominated bonds.

Proceeds from the issuance will be deployed to cover for general purposes, including budgetary support, as the government raises its spending to reach herd immunity by vaccinating at least 70 percent of the population by the end of the year.

National Treasurer Rosalia de Leon said the preference for the 25-year global bond showed that investors trust the country would bounce back in the long term from the economic slump it endured during the pandemic.

“Investors see our economic revival is imminent, strong and long lasting,” De Leon said.

Finance Secretary Carlos Dominguez III said investors abroad believe that the government would succeed in reverting the economy to its pre-pandemic levels and maintaining fiscal responsibility when they purchased the dual tranche offering.

The Bank of China, Deutsche Bank, Goldman Sachs and Morgan Stanley served as the joint bookrunners for the transaction. They are joined by MUFG Securities, Standard Chartered Bank and UBS in underwriting the country’s return to the foreign capital market.

The government looks to widen its borrowing program to P3.02 trillion for 2021, from P3 trillion in 2020, to fund its response measures in containing the virus. The bulk of the credit will be secured from domestic sources at P2.58 trillion, while the remaining P442.36 billion will be obtained from foreign financiers.

Bonds and other inflows should make up nearly 65 percent or P286 billion of the foreign debt, while program and project loans will account for the remaining 35 percent or P156.35 billion.

As such, government economists expect the country’s debt-to-GDP ratio to rise to 57.8 percent this year after ballooning to 54.5 percent last year, the highest since the 58.8 percent in 2006.