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Government raises $1.2-billion euros from first zero coupon bonds

The government said Wednesday it raised 1.2 billion euros from the sale of benchmark three- and nine-year euro-denominated global bonds, with the shorter-dated paper fetching a zero-percent coupon rate.

The debt paper is expected to be rated investment-grade or “Baa2” by global debt watchers Moody’s Investors Service, “BBB+” by Standard & Poor’s and “BBB” by Fitch Ratings. The notes are expected to settle on Feb. 3, 2020. 

Officials of the Finance Department said the offering was a landmark transaction for the Republic, having priced its lowest coupon euro issuance and its first-ever zero-coupon euro issuance in the international capital markets. 

“The overwhelming response from the market for this landmark transaction underscores the international investor community’s deepening confidence in the Philippine economy amid the reforms put in place by the Duterte administration to sustain the country’s high and inclusive growth in the face of the current geopolitical headwinds,” Finance Secretary Carlos Dominguez III said in a statement.

National Treasurer Rosalia de Leon said the offering garnered significant demand from high-quality accounts “which allowed us to price a record-low EUR coupon for the Republic”. 

“The successful transaction allowed us to diversify our funding program and minimize our funding costs to support productive spending for infrastructure and social services,” de Leon said.

The Treasury said the “overwhelming reception” from the market allowed the pricing guidance for the bonds to tighten both tranches by 25bps to 3Y EUR Midswaps +40 bps and 9Y EUR Midswaps +70 bps after being revised from an initial pricing guidance of 3Y EUR Midswaps +65 bps area for the 3-year bonds and 9Y EUR Midswaps +95 bps area for the 9-year bonds.

It said the 3-year bonds allowed the Republic to price the first zero coupon bond in the EUR markets and price its tightest coupon in history for EUR transactions.

For the 3-year 600 million zero-coupon global bonds, by geographical allocation, 16 percent of the bonds were allocated to Asia excluding the Philippines, 4 percent to the Philippines, 26 percent to the United Kingdom, 13 percent to Germany, 12 percent to France, 5 percent to Italy, 10 percent to other European investors and 14 percent to the U.S. Julito G. Rada

The Treasury said that in terms of investor type, 68 percent went to asset and fund managers, 22 percent to banks, 4 percent to central banks, pension funds and sovereign wealth funds, 3 percent to Insurance and the remaining 3 percent to private banks and others.

It said that for the 9-year 600 million 0.700 percent global bonds, by geographical allocation, 16 percent of the bonds were allocated to Asia excluding the Philippines, 6 percent to Philippines, 31 percent to the United Kingdom, 15 percent to Germany, 6 percent to France, 13 percent to Italy, 8 percent to other European investors and 5 percent to the U.S.

Dominguez said the credit for the successful issuance of the Republic’s lowest and first-ever zero-coupon EUR global bonds in the international capital markets should go to President Rodrigo Duterte for his unwavering support for the economic management team, the Department of Finance and Bureau of the Treasury professionals and the bankers.

Dominguez said the issuance of the euro bonds formed part of the government’s efforts to diversify funding sources for its unmatched investments in infrastructure and human capital development to sharpen the country’s global competitiveness, generate investments and jobs, eradicate poverty and achieve financial inclusion for all law-abiding Filipinos.

Proceeds will be used for general government purposes, including budgetary support. 

Topics: Moody’s Investors Service , Standard & Poor , Fitch Ratings , Rosalia de Leon
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