Government set to issue euro bonds

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THE Bureau of the Treasury (BTr) is set to issue euro-denominated bonds again this year, according to National Treasurer Rosalia V. de Leon, with the government also gauging the market’s appetite for dollar-denominated papers.

“We have announced the appointment of four banks and we started the investor calls… We still have to see the market conditions but we have already done the indication in terms of tenor — both for three years and nine years,” Ms. De Leon told reporters on the sidelines of the Treasury bills auction held in Manila, Monday.

Reuters said UBS, Citigroup, Standard Chartered Bank, and Credit Suisse are joint lead managers and joint bookrunners for the transaction.

Ms. De Leon said they opted to make euro bonds their first issuance for the year in order to have the “give-and-take advantage of the negative yields” in the Euro zone.

Asked how much they are looking to issue, she said: “It’s indicated — benchmark. So we still have to get indications of interest (from) investors after the calls.”

Ms. De Leon said while dollar issuances are always on the table for the Treasury as there have been successful dollar bond issues from corporates, the government is offering euro bonds first following the strong demand it saw for last year’s offering of these papers.

“But this time, we would want to approach the European investors coming from a very strong order book last year,” she said.

May mga (There are) spillovers pa ’dun na (from that offer that) we were not able to accept. So we’re coming back for this issue,” Ms. De Leon added.

The Treasury returned to the European capital market after 13 years in May last year, raising €750 million ($852 million) via an offer of eight-year euro bonds, which carry a coupon rate of 0.875%.

The offer was six times oversubscribed, with orders hitting almost €3 billion. This caused the government to upsize its initial target issue size of €500 million.

S&P Global Ratings assigned a BBB+ rating to the proposed issuance, while Fitch Ratings gave it an expected rating of BBB. Both are at par with the debt watchers’ respective credit ratings on the Philippines.

Analysts are bullish about the upcoming euro-denominated issuance as they see lower borrowing costs due to the negative interest rates in the Euro zone, but did note the need to manage foreign exchange risks.

“The euro is off to a good start this year… At this point, the euro is a good choice,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a text message on Monday.

Mr. Asuncion said a factor to consider in issuing foreign-denominated bonds would be the exposure of the government to other currencies.

“I think the BTr has set a limit of how much the economy should be exposed to volatile currency movements,” he said.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said this bodes well for the government’s diversification of its funding sources.

“Managing foreign exchange risks involved in foreign borrowings of the government is also important, while also taking advantage of lower borrowing costs compared to peso-denominated borrowings…,” Mr. Ricafort said in a text message.

“This also effectively reduces pressure on local interest rates from going up,” he added.

The Treasury is programmed to borrow $3.7 billion from external sources for 2020. This will help finance the government’s P4.1-trillion ($80.52 billion) budget this year, which is 12% higher than last year’s spending plan.

The government plans to raise P1.4 trillion this year from local and foreign lenders to plug its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Luz Wendy T. Noble with Reuters