Marcos government taps international debt market for first time

MANILA, Philippines — The Marcos administration is making its debut in the international debt market with the issuance of dollar and green bonds, but higher borrowing costs may impact on the amount that can be raised.

According to a notice of issuance, the Philippines will borrow at least $500 million from foreign sources by offering global bonds with tenors of five and 10.5 years, as well as a 25-year sustainability bond.

This officially marks the first global bond issuance of the Marcos government three months since assuming office.

This is also the second dollar bond issuance for 2022 after the last one undertaken by the Duterte administration in March.

Proceeds of both the five and 10.5-year bonds will be used for general budget financing while the green bond is set to refinance assets in line with the country’s sustainable finance framework.

With the latest move to borrow internationally, Department of Finance Secretary Benjamin Diokno said the government is being opportunistic.

In a Viber message, Diokno said: “75:25 [domestic:foreign source] that’s the preferred mix. But sometimes one has to be opportunistic.”

Earlier, Diokno said borrowings would focus on domestic sources to minimize the country’s foreign exchange risk resulting from global uncertainties.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the dollar bond issuance is one way to diversify the country’s funding sources and constantly provide liquidity of Philippine global bonds in the international market.

However, he warned of current higher borrowing costs that may temper the amount the government can raise.

During the last dollar bond issuance in March, the government raised $2.25 billion from offshore borrowing despite a volatile market at the time following the onset of the Russia-Ukraine war.

This time, soaring inflation and fluctuating currencies are hounding economies globally.

“The amount to be raised would be more conservative and prudent, also in view of higher funding and borrowing costs recently,” Ricafort said.

“There may also be a need to hedge foreign borrowings in view of the forex risks involved,” he said.

Nonetheless, Ricafort noted that the country’s external debt-to-gross domestic ratio remains relatively lower compared to similarly rated countries in Asia.

He said this effectively allows greater leeway on foreign borrowings, but may still require hedging and caution as a matter of prudence in view of the foreign exchange risks involved.

Meanwhile, New York-based Moody’s Investors Service assigned senior unsecured ratings of Baa2 to the dollar-denominated bond offerings of the government.

“The bonds to be issued under the government’s existing shelf program filed with the Securities and Exchange Commission in the US will constitute direct, unconditional and unsubordinated obligations of the government of the Philippines,” Moody’s said.

It added that the bonds will rank pari passu or on equal footing with all of the country’s current and future senior unsecured external debt obligations.

The rating also mirrors the credit rating of Baa2 held by the Philippines.

The notice listed BofA Securities Inc., Goldman Sachs, HSBC, JPMorgan Chase & Co., Morgan Stanley, SMBC Nikko Securities, Standard Chartered, and UBS Group AG as joint lead managers and bookrunners for the issuance.