PH studying foreign debt swap, global peso bonds


Posted at Jul 06 2011 03:53 PM | Updated as of Jul 07 2011 12:46 AM

MANILA, Philippines - The Philippines is studying a foreign debt swap and a third issue of global peso bonds as it pursues a policy of stretching its debt maturities and cutting interest costs and foreign borrowing, the Finance chief said on Wednesday.

The government expects annual growth in the second quarter to have exceeded the March quarter's 4.9 percent, the economic planning chief said, and the central bank said while growth prospects were favorable there were pressures on liquidity from investment flows seeking higher returns in emerging markets.

Manila opened a swap of local debt this week, offering at least 100 billion Philippine pesos ($2.3 billion) of new 2022 and 2031 bonds for debt with shorter maturities, and Finance Secretary Cesar Purisima told reporters another foreign debt swap was possible.

"If swapping will help us, then we will do that," he said.

The government held local and foreign debt swaps last year, capitalizing on investor interest in emerging markets to help lengthen the average maturity to 8.8 years at end-December from 7.9 years in June 2010, with the average foreign debt maturity at 11.4 years.

Purisima said Manila, an active issuers of sovereign foreign debt, was open to selling more U.S. dollar bonds to keep markets liquid, but said a strong budget position meant there was actually no need for more foreign borrowing.

"We are ahead in terms of the (fiscal) program, we don't want to have a negative carry," he said when asked about a previous plan to sell $500 million of U.S. dollar bonds.

"We will make our decisions depending on our need."

One option was a third issue of global peso bonds, which are denominated in pesos and settled at a predetermined exchange rate, cutting the country's foreign exchange exposure.

"The market has been valuing the GPN (global peso notes) quite well," Purisima said.

"Therefore we would be willing to use the GPN when the opportunity offers itself," he said, adding the government had been talking with advisers about a possible issue.

Separately, Economic Planning Secretary Cayetano Paderanga said annual growth in the second quarter was likely to be faster than the March quarter's 4.9 percent, but unlikely to outpace the 8.9 percent growth in the corresponding period of 2010 when election spending boosted domestic output.

Paderanga said government spending on infrastructure, expected to start picking up in the second half of 2011 after a slow start to the year, was aimed at boosting sustainable growth and not just meeting the annual target of 7-8 percent.

Central Bank Governor Amando Tetangco said prospects were favorable for sustained growth, although there were risks from strong capital flows inflating liquidity, which had prompted a rise in bank reserve requirements in June.

"Right now we are making sure that liquidity is appropriate," Tetangco said. "But given what we have seen in the form of capital flows, there is sustained pressure for liquidity to go up."