Duterte administration embarks on first global bond sale to fund infra projects

The Philippine government is selling 25-year global bonds worth at least $500 million, the Duterte administration’s first foray in the offshore debt market.

The money that will be raised in the dollar-bond issuance due in 2042 will fund the national budget, especially infrastructure projects, amid plans to increase spending to over 7 percent of the gross domestic product by 2022. The bonds will be sold starting Wednesday (Tuesday in the US).

National Treasurer Roberto B. Tan had said the Bureau of the Treasury was granted by the Bangko Sentral ng Pilipinas and the Office of the President to raise $500 million from global bonds on top of $1.5 billion for liability management.

The government designated Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Standard Chartered Bank as well as UBS AG Hong Kong Branch as joint lead managers for the offshore bond sale.

These fresh bonds will be settled on Feb. 2.

The government will also embark on a liability manage- ment activity by exchanging 14 earlier issued bonds maturing between 2019 and 2037.

Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Standard Chartered Bank and UBS AG Hong Kong Branch will act as collective deal managers, while Deutsche Bank Securities will act as billing and delivering bank for the bond swap.

The liability management exercise will start at 8 p.m. New York City time on Jan. 17 (or 9 a.m. Manila time on Jan. 18), and expire at 2 p.m. New York City time on Jan. 18 (3 a.m. Manila time on Jan. 19).

In a statement, debt watcher Fitch Ratings said it assigned a rating of “BBB-” to the Philippines’ forthcoming US dollardenominated bonds.

“The Philippines intends to use the proceeds from the bond sale to pay the purchase price and accrued interest of its own securities repurchased in an associated debt management operation. Residual proceeds may be used for general budget financing purposes,” Fitch said.

The Duterte administration wanted to finance its programmed wider deficit of 3 percent of the gross domestic product in the next six years through a borrowing mix of 80-percent local and 20-percent foreign.

This year, the Duterte administration plans to spend P860.7 billion or 5.4 percent of the gross domestic product (GDP) on hard infrastructure, en route to bringing the infrastructure spending-to-GDP ratio to 7.2 percent by 2022.

“These record levels of spending will align our country with its more vibrant neighbors and put us on track to achieve our vision of eradicating extreme poverty and transforming our economy into a high-income one by 2040,” Budget Secretary Benjamin E. Diokno said this week.

Infrastructure buildup forms part of the Duterte administration’s 10-point socioeconomic agenda aimed at slashing the poverty incidence to 14 percent by 2022 from 21.6 percent last year.

The Treasury postponed to February 2016 its last offshore bond sale amid volatility in global markets toward the end of 2015. It usually goes to the global market in January.

The Philippines eventually sold $2 billion in 25-year sovereign bonds at a record-low yield of 3.7 percent in that particular undertaking.