By Clarissa Batino and Tom Kohn
Jan. 7 (Bloomberg) -- The Philippines started selling dollar bonds in Asia’s first public sale of high-yield foreign- currency debt this year, giving the government funds to respond to the worst economic slump in eight years.
The sale of 10-year securities drew bids for as much as $1 billion from Philippine buyers alone as of noon in Manila, twice the minimum target of $500 million, according to two people familiar with the deal, who asked not to be identified. “This will help boost funds so the government can increase spending,” Treasurer Roberto Tan said in a phone interview today in Manila.
The Southeast Asian nation plans to raise as much as $1.5 billion selling bonds overseas this year as interest-rate cuts and pumping of cash by central banks worldwide helped lower borrowing costs and increased risk appetite. The extra yield investors demanded for Philippine dollar debt over 10-year U.S. Treasuries dropped to 5.9 percentage points from as high as 9.85 percentage points in October, prices by ING Groep NV show.
“The yields are attractive and with the strong demand, it looks like the government can complete its full-year overseas requirement already,” said Yvette Marquez, who helps manage about $6.9 billion in assets as a senior trader at BPI Asset Management in Manila. “It’s best to be over and done with before other emerging-market issues flood the market.”
Early Advantage
The Philippines’ overseas debt sale target for this year is triple last year’s total. It is aimed at supporting a stimulus plan amid forecasts growth will cool to the slowest since 2001, while boosting the supply of dollars during a global credit crunch. Getting to the market early may be an advantage because emerging-market bond sales may rise 68 percent to $65 billion this year, according to estimates by ING.
The government hired Credit Suisse Group, Deutsche Bank AG and HSBC Holdings Plc to help sell the bonds due June 2019. The securities may be sold between 8.5 percent and 8.75 percent, the two people familiar with the deal said. The pricing will be set later today in U.S. time.
“We hope it’s going to be a successful deal,” Tan said. “We think 10-years is where the demand is.”
Brazil and Colombia each sold $1 billion of bonds yesterday and Chile said it may also tap international markets. South Korea’s government plans to borrow up to $6 billion this year and Indonesia in November said it may raise about $2.1 billion in dollar-denominated debt in 2009.
‘Pump Priming’
“Everybody has the same strategy, which is to pump prime the economy,” said Rafael Algarra, treasurer at Security Banking Corp. in Manila.
Brazil sold 10-year notes to yield 6.13 percent, or 3.7 percentage points above U.S. Treasuries, while Colombia sold 10- year securities to yield 5.03 percentage points more at about 7.5 percent. Chilean Finance Minister Andres Velasco said the government plans to issue its first foreign bonds since 2004 to help fund a fiscal stimulus plan.
“A five- to six-percentage-point spread over Treasuries should still be reasonable” cost for the Philippine government, BPI’s Marquez said.
The collapse of Lehman Brothers Holdings Inc. in September and more than $1 trillion in losses linked to mortgage-related securities worldwide froze credit markets, driving up the London interbank offered rate, or Libor, for three-month dollar funds to a 10-month high of 4.82 percent on Oct. 10. The benchmark borrowing cost has since dropped to 1.41 percent, according to the British Bankers’ Association.
Difficult Environment
“It’s going to be difficult for any issuer in this kind of environment, sovereigns, banks or corporates,” said James McCormack, the head of Asia sovereign ratings at Fitch Ratings in Hong Kong. “This has nothing much to do with the credit risk of a particular country like the Philippines, where fiscal developments have been quite positive in the past years.”
Fitch rates the country’s foreign-currency debt at BB, two levels below investment grade. Standard & Poor’s rates it BB-, or three levels below investment grade.
The yield of the benchmark 9.875 percent bond jumped 54 basis points today to 8.24 percent. A basis point is 0.01 percentage point.
The Philippine government asked Congress to approve a 9 percent increase in spending, excluding interest payments, to stoke growth. It predicts the budget deficit will widen to the most in four years in 2009 as revenue collection falters.
Slowing Growth
Expansion may cool to 3.7 percent this year, which would be the slowest since 2001, according to official estimates.
The government increased its domestic borrowing plan this year by 20 percent to 386.5 billion pesos ($8.3 billion) from an earlier plan of 321.5 billion pesos, Finance Secretary Gary Teves said in November.
The overseas debt plan for 2009 is unchanged at 123.4 billion pesos ($2.6 billion), Teves had said. Lenders like the World Bank and Asian Development Bank may provide the remainder outside of the $1.5 billion in planned bond sales.
Philippine central bank Deputy Governor Diwa Guinigundo last month urged the government to borrow more in dollars to ease the pressure on the peso. The currency strengthened for a third day.
To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net; Tom Kohn in Hong Kong at tkohn@bloomberg.net
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