Sergio Edeza, treasurer, bureau of the treasury,
department of finance
What has been your overall borrowing strategy for 2002?
Our strategy has been opportunistic in general. The sovereign accessed the market during periods of the year when there was ample demand for Philippines paper. At the same time this strategy was complemented by an anticipation of financing requirements. We borrowed based on forecasted funding needs rather than borrowing to fill up existing needs. This allowed us to build up comfortable cash positions without disrupting market prices.
Are you on target to achieve your borrowing objectives this year?
We completed all of our international bond funding requirements by May this year. What we expect to do moving forward is to address our requirements for next year, while again building a buffer to our existing cash position.
After a strong performance earlier in the year, contagion from Latin America and worse than expected budget deficit figures have meant that your bonds have weakened in the past two months. Has this underperformance affected your ability to issue in the international bond markets?
While it is true that Philippine spreads have widened recently the absolute yields of sovereign bonds are still lower than those of last year or even at the beginning of this year. The underperformance has not affected the appetite for Philippine paper as has been demonstrated by the number of funding proposals we continue to get even now.
Will the government overshoot its full year budget deficit target of Ps130bn, given that the deficit total by the end of July was Ps133bn? And do you think that the full year's target is still achievable?
To be candid about it, I think we will be hard pressed to meet this year's target of Ps130bn. I cannot at this point disagree with market expectations of a higher than forecast deficit. One, however, should note that the government is making all efforts to contain the deficit within its target and that as a ratio to GDP we expect to better last year's ratio.
With regard to the need to borrow on account of a probable higher deficit, we do not see ourselves having to access the international bond markets in a huge way. At this point we have enough cash to technically finance a deficit as high as Ps170bn. But one must note that our financing tactic is both anticipatory and opportunistic.
The 2003 budget deficit figure has been raised from Ps98bn to Ps142.1bn. How are you planning to finance this?
We are expecting to raise $2.4bn through international bonds next year to finance part of the budget deficit. The balance will be raised through domestic issues. Prefunding, starting from the last quarter of this year, should be expected.
Do you think investors' opinion of the Philippines has changed because of the deficit figures and the impact of Latin America's bonds on Philippines paper? Are you confident that you can still receive strong investor support?
I think investors have become more cautious about emerging markets in general. I do not think that opinion regarding the Philippines has changed significantly except for a more cautious attitude. We are confident that there is still strong investor support for the country.
This year all of your international bond issues have been in dollars. Why is this?
We have issued more dollar bonds because they are a better source of funds in terms of getting relatively better cost levels and investor support for our preferred longer term maturities. Furthermore, we are still in the process of introducing the Philippines in the euro and yen markets. For 2003, however, we are looking to issue one half of our $2.4bn external funding requirements in euro, yen and other currencies.
Do you believe that your rating of Ba1/BB+ could be changed in the next 12 months?
That is not easy to answer considering that it is a scorecard of one's performance. I do believe, however, that the Philippines has suffered from negative sentiment and perception for a very long time and that we deserve a better rating than we have right now.
Will you increase your overall foreign currency fundraising in 2003?
We try to keep within our stated foreign borrowing programme. If the programme were to be altered it would be on account of a shortfall in one component of the programme. So if the expected funds from foreign financing firms and multilateral institutions fell short we would have to increase foreign commercial financing instead.
Have you increased your fundraising in the domestic bond market? Is this likely to continue?
Domestic fundraising is also opportunistic and anticipatory. Therefore we will be in the domestic bond market depending on our level of comfort and anticipation of expected cash requirements.
The Power Sector Assets and Liabilities Management Corp is thought to be arranging a $500m international bond issue for the National Power Corp (Napocor) with partial guarantees from the Asian Development Bank. Why has the government decided to adopt this structure rather than raise debt for Napocor at the sovereign level and on-lend it?
There is no final decision yet as to the form of this bond issue at this time and I would like to reserve my comment for now.
Are any other state related companies likely to access the market on their behalf in the coming year?
You should expect both Napocor and the Bangko Sentral ng Pilipinas [central bank] to access the market in 2003.
How do you choose your lead managers for new deals? Is the proposed pricing level the most important concern?
It is not only price that matters. One also has to look at execution capabilities and the quality of the service provided. All things then being equal, pricing becomes the main consideration.