Domestic borrowing eyed for PSALM

THE Department of Finance’s planned borrowing on behalf of the Power Sector Assets and Liabilities Management (PSALM) Corp. would be sourced domestically to spare the debt-saddled state firm from foreign currency fluctuations and to avoid the peso’s further appreciation.

Finance Undersecretary Rosalia de Leon told reporters that since it is the sovereign that would be borrowing and relending to PSALM, it is within the government’s preroga- tive to raise funds onshore.

“Our preference is [for PSALM to do a bond sale] onshore. We still have yet to check the pricing and discuss it further with them but we want it onshore,” de Leon said.

PSALM earlier expressed its intention to borrow at least P85 billion this year to supplement its budget deficit to service its debt, provide for its operational expenses on fuel and maintenance, and pay its obligations to independent power producers (IPPS).

It was reported that PSALM is eyeing to raise funds by tapping the international market.

The Finance official said that the Department of Finance is in the process of finalizing the bond structure to fund PSALM’S P85-billion budget deficit. The debt sale, de Leon said, would “definitely happen within the first quarter of the year.”

“It could be in tranches, we still don’t know. We have to discuss this further with PSALM,” she added.

De Leon said that given the high level of liquidity in the domestic market, banking and other financial institutions here would benefit from investing on instruments that has sovereign guaranty.

“During the sale of the ROPS [dollar bond sale last month], we had $5 billion from local bids, and then we have about P2 trillion parked in SDAS [special deposit accounts] in the Bangko Sentral [ ng Pilipinas], there’s a lot of liquidity,” she said.

“A domestic bond sale would also shield PSALM from foreign currency shocks. We also would want to stop the peso appreciation,” de Leon added.

Selling the debt offshore in dollars would increase the supply of the foreign currency in the local financial system, and this could lead to further appreciation of the peso against the dollar that would consequently make Philippine products more expensive, and reduce the value of remittances in peso terms.

For the year, PSALM’S maturities stood at $ 1.7 billion. The state firm’s monetary obligations are not paid by the government, but are instead passed on to consumers through a universal charge that is reflected in electricity bills.