Philippines Buys Back $1.3 Billion Worth of Overseas Bonds

The Philippine Finance Secretary Cesar Purisima said Saturday (October 15, 2011) that the government's successful buyback of some foreign-currency sovereign bonds should help the country's cause to win investment-grade ratings from credit agencies.

Around $2.2 billion of the eligible $17.7 billion of global and euro bonds have been offered by bondholders in the Philippines' latest liability management efforts, which sought to repurchase around $1.5 billion in foreign debt. The government accepted bonds with nominal principal amount of $1.3 billion and will pay bondholders a total $1.7 billion, including the purchase price and accrued interest.

Of the $17 billion debt that qualified for repurchase, about $2.2 billion of bonds were offered by investors, the government said. The nation will use mostly internal funds for the buyback, and the $1.7 billion figure includes accrued interest along with the bonds' original price, it said in the statement.

The $200 billion Asian economy is reducing its budget deficit, extending debt maturity and cutting its foreign- currency risks to achieve a higher credit rating. The administration of President Benigno Aquino had conducted bond exchanges and sold peso-denominated bonds to overseas investors since starting a six-year term in June 2010.

Purisima said the bond repurchase is "in line with our ongoing objective to rebalance our debt portfolio in favor of local currency. This should be supportive of our effort to obtain investment-grade ratings," he added.

The government expects savings of around $165 million in "net present value" from the buyback, Finance Undersecretary Rosalia de Leon said. Bonds due from 2013 to 2032 were accepted for purchase by the government in a transaction to be settled this month, according to the statement.

"This exercise highlights our strong liquidity and prudent debt management policy amid global volatility," Treasurer Roberto Tan said in the statement.

Despite recent upgrades from all three major credit agencies, Philippine debt still remains in junk territory. Fitch Ratings ranks Philippine debt a notch below investment grade while Standard & Poor's and Moody's Investors Service both place Manila's debt two notches below investment grade. A higher rating should save the Philippines, one of Asia's most prolific sovereign debt issuers, millions in debt services annually.

Purisima said the invitation to sell bonds back to the Philippines drew both local and international investors, and bonds accepted by the government have maturities spanning 2013 and 2032.

The bond repurchase will be financed with internal funds of the National Treasury. The government is currently offering to the public 10-year and 15-year peso-denominated retail treasury bonds, and hopes to raise over ₱200 billion (Php) Philippine Peso in the bond sale, the proceeds of which may also be used to pay for the repurchased foreign-currency bond.

National Treasurer Roberto Tan said the liability management exercise underscores the Philippines' "strong liquidity and prudent debt management policy amidst global volatility."

The transaction is expected to be settled on October 25, 2011.

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