Having successfully steered the Philippines’ funding campaign through outright political chaos in 2005, Omar Cruz, the country’s treasurer, earned the acclaim of the international financial community. So it is a testament to his continued proficiency that the former Citigroup banker, who announced his resignation as treasurer at the end of April, scoops the award for best funding official for the second year running.
Through a combination of clarity and professionalism, Cruz, who will be leaving the treasury for personal reasons in June, managed to reassure the markets at a time when president Gloria Arroyo had declared a state of emergency, following fears of an imminent coup. Buoyed by the country’s strengthened fiscal position in 2006, he took the market by storm, unveiling a $3.3 billion funding plan last January. The Philippines kicked off the year with its largest ever issuance in euro as well as dollar tranches, raising two-thirds of the country’s stated funding target in the first week alone.
A bold $1.5 billion, 25-year bond issue, lead managed by Citigroup and Credit Suisse was followed later the same day by a E500 million, 10-year issue lead managed by Deutsche Bank and UBS, announced as the last major issue of the year. These well-timed and accomplished euro/deal issuances were eight and seven times oversubscribed respectively and were one of the largest fundraisings for an Asian speculative grade borrower. Investor demand continued through the year; in late July, a $750 million tap of 2016 and 2031 bonds was 15 and 19 times oversubscribed respectively.
Coming in big
“We wanted to be very clear to the market with a consistent funding requirement and a clear fiscal strategy, so this large issue was timed to take advantage of the liquidity,” Cruz tells Emerging Markets. “My strategy is to project to the market – come in big with benchmark sizes – and the appetite was clearly there.”
Mark Leahy, managing director and head of Asian debt syndicate at Deutsche Bank, who was involved in the deals says: “These euro/dollar deals had a perfect recipe – good timing as the first major deal of the year, excellent tranche selection to ensure maximum numbers of investors could be involved, the most attractive points in the curve and, of course, a clear and transparent funding plan and execution strategy.”
Cruz has helped cast off the treasury’s former reputation for unreliability and unrealistic pricing through a consolidated debt management programme, with robust benchmark sizes and deep, liquid issues – a fact that has helped transform the Philippines from a frequent and often messy borrower. In fact, Cruz believes the challenges he set for himself have proved so successful, he is now dispensable. “I have put a tidy and accomplished programme in place, as well as establishing a platform for peso bonds. The next treasurer should have an easy task continuing my strategy, given the infrastructure that has been set in place.”
The funding official took a proactive approach to developing liquid and sophisticated local capital markets as well. Against the backdrop of a state of emergency, the Philippines executed a landmark $2.2 billion bond swap in late January, exchanging 90 domestic government bonds into three new and more liquid benchmark bonds: a Ps30 billion of three-year benchmark bonds, Ps25 billion of five years and Ps20 billion of seven years. The deal allowed the government to boost liquidity and lengthen maturities.
Cruz takes a very clear position on these domestic opportunities, mindful of the exchange rate benefits: “We need to move away from foreign lending to develop the local market and make it less fragmented. And if foreign investors play in the domestic bond market, we have a high-yield advantage and spreads will tighten further.”
Vicente Castillo, president and chief executive officer of the Philippine Dealing Systems Holdings Corp, which runs the financial infrastructure for the domestic market, believes sovereign issuance has helped domestic markets: “The bond exchange was pioneered and promoted under the term of Omar Cruz and brought benefits such as increased trading volume, market liquidity, flatter risk-free yield curve, ultimately resulting in lower interest rates for long-term projects.”
Simon Paterno, managing director and country manager for the Philippines at Credit Suisse, says: “Before the exchanges, peso bonds typically had bid-offer spreads of 75-100 basis points. Now we are seeing the new benchmarks trading with 7.5-10bp bid-offers.” Indeed, such tightening has encouraged domestic borrowing, with Petron, Philippine National Bank and Ayala Corporation subsequently raising issues.
The personal touch
But Cruz’s technical skills were also complemented by a careful management style, assuring investors the Philippine debt market was well controlled under his tenure: “I received a group of investors virtually every day; I tried to have a one-on-one with them, explain our cash management processes and financial control exercises,” he says. “I also made the effort to visit investors during non deal times to update them – I didn’t allocate and then just leave it to the syndicates.”
Paterno agrees this work has paid off: “Omar has done a great job with investor relations, keeping them well informed, and has broadened international support for Philippines peso bonds.” Cruz, winning the adulation of the market and analysts alike, will be a hard act to follow. As Paterno cautions: “I hope his replacement will buy into the philosophy of Omar; his absolute confidence and respect for the markets and his reliable and transparent policies. International acclaim is a signal that his legacy should not be touched”.