THE government raised €1.2 billion from its offer of two tenors of euro-denominated bonds following strong demand from investors, including the three-year papers priced at a near-zero coupon.
National Treasurer Rosalia V. de Leon said they sold €600 million each for the two tenors, — three years and nine years — causing the government to upsize its issue from the initial plan of a benchmark size issuance worth €500 million.
Based on a report from Ms. De Leon, Finance Secretary Carlos G. Dominguez III said the three-year bonds were priced at a rate of 0.1%, while the nine-year papers carry a coupon of 0.7%, a spread of 40 basis points (bps) and 70 bps over benchmark rates, respectively.
The offer was oversubscribed by more than three times than the initial offer, with total bids coming in at €4.3 billion.
“This is RoP’s (Republic of the Philippines) lowest coupon EUR (euro-denominated) issuance and first ever zero-coupon EUR issuance in the international capital markets,” Mr. Dominguez told reporters Wednesday morning in a Viber message.
Ms. De Leon said the 0.7% coupon for the nine-year papers, despite being a longer tenor, was tighter than the 0.875% fetched for the eight-year bonds they issued in May last year.
“Moreover, given the fair value of our outstanding EUR bond due 2027 (with 7.5 years remaining life) being at 67 bps over benchmark, and given a pickup of about 5 bps for every one-year extension, new nine-year should be priced at around 75 bps, yet we managed to pierce thru our RoP curve by pricing at 70 bps over benchmark. This translates to a negative new issue concession of approximately 5 bps,” she said.
“The offering garnered significant demand from high quality accounts which allowed us to price a record low EUR coupon for the Republic. The successful transaction allowed us to diversify our funding program and minimize our funding costs to support productive spending for infrastructure and social services,” Ms. De Leon added.
Ms. De Leon said the government’s offer was met with strong demand from a diverse group of investors both from onshore and offshore markets.
“We are also reaping the benefits of actively engaging investors prior to going out in the market,” she added.
The fundraising activity is meant to diversify the government’s funding sources as well as serve as a budgetary support for its programs on infrastructure and human capital development, among others, the official said.
The papers are expected to be settled on Feb. 3.
UBS served as the sole global coordinator for the transaction. It also joined Citigroup, Standard Chartered Bank, and Credit Suisse as joint lead managers and joint bookrunners for the issue.
Of the €600 million borrowed via three-year euro bonds, 16% of the bonds were allocated to Asia excluding the Philippines, 4% to the Philippines, 26% to the United Kingdom, 13% to Germany, 12% to France, 5% to Italy, 10% to other European investors, and 14% to the United States, the Treasury said in a statement on Wednesday.
In terms of investor type, 68% went to asset and fund managers, 22% to banks, 4% to central banks, pension funds and sovereign wealth funds, 3% to insurance firms, and the remaining 3% to private banks and other investors.
Of the €600 million worth of nine-year securities, 16% of the bonds were allocated to Asia excluding the Philippines, 6% to the Philippines, 31% to the United Kingdom, 15% to Germany, 6% to France, 13% to Italy, 8% to other European investors, and 5% to the US.
In terms of investor type, 54% went to asset and fund managers, 18% to banks, 3% to central banks, pension funds and sovereign wealth funds, 24% to insurance, and the remaining 1% to private banks and others.
Earlier this week, S&P Global Ratings assigned a BBB+ rating to the issue, Moody’s Investors Service gave a Baa2 senior unsecured rating, while Fitch Ratings assigned an expected rating of BBB. All of these ratings mirror the credit watchers’ respective assessments for the Philippines.
The Philippines returned to the European bond market after 13 years last May, raising €750 million in eight-year papers, upsized from the initial €500-million offer as the total orders reached €3 billion.
On Tuesday, Deputy Treasurer Erwin D. Sta. Ana earlier said they will likely offer other offshore bonds within the first semester.
Mr. Sta. Ana said they are also considering the dollar, panda and samurai markets.
Of the P1.4-trillion borrowing program this year, the government will borrow 25% or around P350 billion from external sources, while the remaining 75% will be sourced from the local market. These borrowings will help fund its budget deficit, which is expected to widen to as much as 3.2% of gross domestic product. — Beatrice M. Laforga