MANILA - In a surprising sign that global credit conditions may be easing for
certain emerging markets, the Philippines raised US$1.5 billion from the sale
of 10-year global bonds to foreign investors, the first by any Asian country
since last June. Investors gobbled up Manila's sovereign bond issue, which was
oversubscribed by four times, officials said.
Among foreign investors, those in Asia accounted for 41% of the Philippine
sovereign issue, followed by the US with 37% and Europe with 22%. "The strong
interest we received from global investors was key to the completion of the
deal," said Philippine Finance Secretary Margarito Teves. "We are hopeful that
our
success will bode well for other Asian borrowers," the official said.
Indonesia, Malaysia and South Korea have all indicated they may soon launch
similar bond issues, though it is not immediately apparent their issues would
generate a similar investor response.
"If you need to borrow, now is the best time when the market is optimistic,"
said Jonathan Ravelas, chief strategist of Banco de Oro Unibank, one of the
Philippines' largest banks. "Although it's a bit expensive to borrow
internationally, the Philippine government has made sure it has enough funds
for the year."
The transaction, with a yield of 8.5%, marked the
Philippines' first global bond offering since its $500 million issue in January
last year. Credit Suisse, Deutsche Bank and HSBC were the issue's joint lead
managers and joint book builders. The 10-year bonds are scheduled to mature on
June 17, 2019.
Favorable assessments of the Philippine economy by foreign credit rating
companies helped prop up investors' interest in the bond float, officials said.
Fitch Ratings said it has maintained a stable outlook on the country despite
the negative implications of the global economic slowdown on the Philippines,
with a long-term foreign currency rating of BB and long-term local currency of
BB+.
"The Philippines is going to fare reasonably well when compared to some other
sovereigns rated in the 'BB' category," said Franklin Poon, director in Fitch's
sovereign group. The Philippines' stable monetary and exchange rate environment
has proved conducive to investor sentiment towards the country's return to
international capital markets, Fitch said.
"Inflation in the Philippines has come down, and the peso has been able to
recover some ground against the US dollar recently," Fitch said.
Moody's Investors Service had a similarly upbeat assessment, giving the
Philippines a foreign currency rating of B1 with a positive outlook on its
global bond issuance. It cited the country's low inflation and stable exchange
rate, which Moody's said are crucial for the government's debt affordability.
Inflation for year-end 2008 settled at 9.3%, close to the low end of the
official forecast of 9% to 11% for the year. That showed that inflationary
pressures, in line with collapsing global commodity prices, are easing locally,
officials said. Unlike some other countries in the region, including Thailand,
it's not apparent yet that deflation is a rising risk for the Philippines.
Moody's senior vice president Tom Byrne, however, said that despite improving
debt trends, the B1 rating also reflects the country's large public-sector debt
overhang, "which leaves government finances vulnerable to shocks".
Standard & Poor's gave Manila's global bond issue a BB- senior unsecured
debt rating, saying the rating reflects the country's strong external liquidity
position, which substantially withstood the recent negative exogenous shocks.
It said it would raise its Philippine ratings if revenue-generating capacity
improves fundamentally in the year ahead.
James McCormack, the head of Asia sovereign ratings at Fitch Ratings in Hong
Kong, also said that when international investors look at the Philippines, they
take some comfort that it doesn't have banking-sector issues and still has been
able to maintain a balance of payments surplus.
"Our overall view is still quite constructive. The Philippines is not in our
top 10 list of concerns in 2009 for two reasons: banking-system stresses aren't
evident and its balance of payments is still favorable, so it doesn't need to
borrow in large amounts to fund the current-account deficit," he said.
The country's gross international reserves stood at $37.1 billion as of
end-December 2008, up by $300 million from the previous month's level of $36.8
billion and by $3.3 billion from the end-2007's $33.8 billion. That store is
enough to cover 5.6 months worth of imports of goods and payments of services
and income.
It's also equivalent to 4.5 times the country's short-term external debt based
on original maturity and 2.8 times based on residual maturity, said the Bangko
Sentral ng Pilipinas (BSP), the central bank. These ratios are at least twice
the international benchmark levels of three months of imports and one times the
debt ratio.
Short-term debt based on residual maturity refers to the sum of short-term
external debt and medium- and long-term loan repayments falling due within the
next 12 months. Fitch's McCormack said the Philippines doesn't have the
"banking system stresses" that South Korea has and is better placed to meet its
foreign debt payments than Indonesia.
"In that regard, the Philippines is actually faring pretty well compared with
others," he said.
In a recent speech before the Rotary Club, BSP governor Amando Tetangco Jr said
the country's banking system remains sound and stable. "The series of banking
reforms put in place over the last five years, the inherent conservatism of
banks and the BSP's phased-in approach to embracing financial innovation have
resulted in minimal exposure of the banking system to the troubled
international financial institutions," he said.
Philippine banks also continue to be capitalized above the international
standard, while their balance sheets are at their strongest since the 1997
Asian financial crisis, Tetangco said. Banks' assets also continued to grow
last year.
The Philippine government plans to use the bond's proceeds to help cushion an
expected budget deficit, which is scheduled to rise to 102 billion pesos ($2.2
billion) this year from an estimated 75 billion pesos in 2008, as revenue
collection falters because of slowing economic growth and exports. Exports
represent around 50% of gross domestic product.
Gross national product, meanwhile, is forecasted to slump to 3.7% this year,
which would be the slowest since 2001, according to official estimates. That's
almost half the 7.2% rate of 2007, but if current forecasts hold, not too far
off last year's provisionally estimated 4%.
Al Labita has worked as a journalist for over 30 years, including as a
regional bureau chief and foreign editor for the Philippine News Agency. He has
worked as a Manila correspondent for several major local publications and wire
agencies in Australia, Hong Kong, Malaysia, Singapore and the United Kingdom.
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