MANILA (UPDATE) - The Philippines wants to conduct a peso-denominated bond swap this year as it looks to lengthen the maturity of its debt and cut costs, a senior government official said late on Thursday.
National Treasurer Roberto Tan said the exact timing, size and other details of the planned swap have yet to be finalized but he wants to do it once market conditions are right.
"We would monitor the market and when the opportunity arise for the best time to undertake a swap we will move quickly," Tan told reporters, adding the planned bond exchange program will allow the government to retire illiquid securities.
Manila's last domestic bond exchange was done in August last year when it issued P140 billion ($3.13 billion) of 2024 bonds.
First Metro Investment Corp (FMIC) has proposed to the government to issue at least P200 billion worth of 10-, 15- and 20-year bonds to be exchanged for "off-the-run" securities.
"The market needs it right now because market is very illiquid," FMIC President Roberto Juanchito Dispo said.
The trading volume in the local bond market has dropped to 10 to 15 billion pesos a day compared with P50-P70 billion a few years ago, according to Dispo.
Dispo also said FMIC, in partnership with CIMB Group of Malaysia, is planning to propose to the government to issue its first sukuk, or Islamic bonds within the year to help the Philippines diversify its debt profile.
Sukuk are financial instruments that comply with Islamic investment principles which prohibit interest payments.
"We will structure it in such a way that there will be underlying assets," Dispo said, adding proceeds from the issue could be used to finance the needs of poverty-stricken areas in Mindanao.
Doing a sukuk issue is "difficult" because of the legal considerations, according to the Treasurer, but he said "there may be avenues for it to push through."
Ratings agencies Standard & Poor and Moody's raised the Philippines' credit rating to two notches above investment grade last year, citing among other factors the government's improving public finances.
As much as 86 percent of the government's borrowing requirement will be sourced from the domestic market this year, with the balance to be raised externally.
The Bureau of Treasury said on Friday it plans to raise P135 billion through the sale of Treasury bills and bonds in the second quarter. It raised P90 billion in the first quarter.
In a notice to government security dealers, the Treasury said it will issue P60 billion worth of 91-day, 182-day and 364-day Treasury bills and P75 billion of 3-, 5,- and 10-year bonds between April-June.