NEW YORK/MANILA - The Philippines' 10-year global peso notes issue attracted huge demand, spurred by investors' growing confidence in the Southeast Asian economy, allowing the government to raise $750 million at a yield lower than initial guidance.
Orders were nearly eight times more than the issue size of P30.8 billion, equivalent to $750 million, with total bids reaching P240 billion, or roughly $5.85 billion.
The Philippines, one of the most prolific global bond issuers among emerging economies, is seeking to cut its dependence on foreign borrowing by pursuing debt buybacks and swaps. It is the only Asian sovereign to offer debt in a synthetic format, issuing in local currency but settling in U.S. dollars.
"Positive investor perception of Philippine credit allowed us to achieve our objective of redenominating our debt into the local currency," said Finance Undersecretary Rosalia De Leon.
Two-fifths of the local currency bonds went to investors in the United States. Asia accounted for 30 percent, and Europe the rest.
The debt has a coupon and yield of 3.90 percent, below the indicative price guidance of 4.1 percent. The deal was done at a currency exchange rate of 41.068 Philippine pesos to the U.S. dollar.
Ahead of the deal, the market had been prepared for $1 billion worth of peso notes.
"As long as the flows are coming into these (emerging) markets, there will be a bias for high-yielding and stronger macro stories and obviously the Philippines has strong fiscal performance," said Kenneth Akintewe, portfolio manager at Aberdeen Asset Management in Singapore, which oversees $6.5 billion in assets.
The new debt offer came less than two weeks after Moody's Investors Service upgraded the country's ratings to one notch below investment grade, matching those of rivals Standard & Poor's and Fitch ratings. [nL3E8LT1DA]
The ratings moves and strong foreign investment inflows are see as an endorsement of President Benigno Aquino's efforts to narrow the budget deficit and deal with other perennial problems: corruption, weak infrastructure and a lack of investment in social services in a country where a third of the population live below the poverty line.
The World Bank forecast in early October that the economy would grow by a robust 5 percent this year and next, with strong domestic demand helping to cushion weaker exports.
Manila will use the proceeds from the notes issue to partly fund a buy-back programme involving as much as $1.5 billion worth of high coupon U.S. dollar and euro-denominated debt.
It plans to buy U.S. dollars from the central bank's record high reserves of more than $80 billion to complete the target debt repayment amount, and help the central bank temper the peso's <PHP=> rapid rise.
The peso is Asia's best performing currency so far this year, having appreciated nearly 7 percent against the dollar on strong foreign inflows into Philippine stocks and bonds. Further gains are forecast, according to a Reuters poll this week.
Investors who want to participate in the debt buy-back programme have until November 15 to submit their bids.
HSBC, Credit Suisse and Deutsche Bank, Citigroup, JP Morgan, Standard Chartered Bank, Morgan Stanley, UBS , Goldman Sachs have been hired to manage the deal.
REDUCING PUBLIC DEBT
The Philippines has sold nearly P98 billion ($2.38 billion) in global peso bonds since September 2010. It also plans to raise as much as $500 million from the sale of U.S. dollar bonds to local investors, partly to create demand for U.S. dollars in the domestic market, and help repay part of the foreign debt of state-run Power Sector Assets and Liabilities Management.
Through its debt management schemes, the Philippines has narrowed its public debt as a percentage of gross domestic product to 42 percent before the latest global peso notes issue from 68 percent in 2003. Its interest payments now account for around a fifth of state spending from close to a third in 2005.