THE Philippines borrowed $3 billion (about P145.7 billion) through its successful issuance of dual-tranche dollar-denominated global bonds.
The Duterte administration returned to the international capital markets for the third time this year with its new benchmark-sized offering of 10.5-year and 25-year dollar bonds.
Three major credit watchers gave the country’s recent bond issuance an investment grade rating, mirroring their ratings of the sovereign’s ability to pay back financial obligations.
S&P Global Ratings gave the country’s benchmark-sized US dollar-denominated global bonds a BBB+ rating. Moody’s Investors Service Inc., meanwhile, assigned a Baa2 rating while Fitch Ratings Inc. gave a BBB rating.
All three ratings agencies said the rating mirrors the Philippine sovereign’s rating.
Sensitivities
Since the ratings are closely tied with the Philippines’s rating, Fitch Ratings said the sensitivities that could lead to an upgrade or downgrade are collective with the country’s rating.
Fitch Ratings cited sensitivities that could lead to a downgrade. These include a sustained rise in the government debt-to-GDP (gross domestic product) ratio associated, for example, with a reversal of reforms or departure from a prudent macroeconomic policy framework that leads to sustained higher fiscal deficits and failure to resume historically high economic growth rates after the coronavirus shock subsides.
On the external front, deterioration in external indicators, including foreign-currency reserves, the current account deficit and net external debt, which lowers the resilience of the economy to shocks, could also lead to a negative action, Fitch Ratings said.
Meanwhile, a sustained broadening of the government’s revenue base that enhances fiscal finances and places the government debt-to-GDP ratio on a downward trajectory, and the strengthening of governance standards towards those of the rating-category peer median will likely lead to a rating upgrade.
Heavy bias
National Treasurer Rosalia V. de Leon said that “the heavy bias towards the 25-year offering underscores the enduring attractiveness of Philippine credit even against the many waves of tribulations stemming from this pandemic.”
Finance Undersecretary Mark Dennis Y.C. Joven said the country’s success in international debt markets shows the “attractiveness of the Republic’s credit profile to the investor community, and the market’s confidence in its economic fundamentals going forward.”
Finance Secretary Carlos G. Dominguez III was quoted in a statement as saying the issuance “shows that investors appreciate the Duterte administration’s heightened efforts to revive the economy back to pre-pandemic levels while maintaining fiscal responsibility.”
According to the Bureau of the Treasury, the dollar bonds with a coupon rate of 1.95 percent were priced at US-Treasury spreads of T+60 basis points, tighter by 30 basis points from an initial pricing guidance of T+90 basis points area.
On the other hand, the 25-year tranche, with a coupon of 3.20 percent, was priced at 3.25 percent, also tighter by 30 basis points than the initial pricing guidance of 3.55 percent area.
The dollar bonds, which have a settlement date of July 6, 2021, are set to mature on January 6, 2032 and July 6, 2046.
Bank of China, Deutsche Bank, Goldman Sachs, Morgan Stanley, MUFG Securities, Standard Chartered Bank and UBS were joint bookrunners for the transaction.
Samurai, euro bonds
The issuance of dual-tranche dollar-denominated global bonds comes after the Duterte administration sold euro-denominated bonds and Samurai bonds earlier this year.
In March this year, the Philippine government borrowed 55 billion yen ($500 million or about P24.2 billion) through its issuance of 3-year zero-coupon Samurai bonds.
The government also borrowed €2.1 billion ($2.53 billion or about P122.4 billion) when it sold its first-ever triple-tranche euro-denominated bonds in April this year.
Last year, the government successfully returned to the dollar bond market twice, raising $2.35 billion in April and another $2.75 billion in December.
For this year, the national government has set a P3.1-trillion borrowing program, of which around 75 percent is expected to be raised through domestic sources.
The national government’s total outstanding debt continued to swell to a fresh record-high of P10.991 trillion in April this year as the country resorts to more borrowings to finance its pandemic response. This was up by 2 percent from P10.77 trillion reported at the end of the year’s first quarter and it was also a 27.8 percent jump from P8.6 trillion of end-April last year.