Republic of the Philippines

  • 23 Sep 2001
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Eduardo Sergio Gonzalez Edeza, treasurer, bureau of the treasury (BoTr), department of finance


As the treasurer of the BoTr you were placed in charge of international bond financing in February 2000, which was previously the responsibility of the international finance group. What is the reason for this change?

As the treasurer, I am in charge of commercial financing in the international markets, but the international finance group is technically still responsible for actually arranging international bond issues. The treasurer's responsibilities already include domestic financing, so by placing international commercial financing under the same position we will help to maintain a co-ordinated financing strategy and schedule to meet the republic's overall requirements.

Undersecretary of finance Juanita Amatong is still the official head of the group.

The Republic of the Philippines is usually a fairly frequent capital markets bond issuer. Why has the government not arranged any large global transactions so far this year?

The republic's external funding requirement's this year totalled $500m, which we have been able to raise through arranging two private placements amounting to $300m and an innovative swap transaction in July that raised $220.4m. As a result, we do not have any more external funding requirements this year.

However, we do have two further international bond issues mandated, which could be used towards next year's external financing requirements or alternatively to reduce our domestic funding target for this year. These transactions consist of a potential $100m Yankee bond via Salomon Smith Barney and a $250m private placement, which Credit Suisse First Boston will sole lead manage. We are currently seeking the necessary documentation and approvals, which we hope to receive by the end of September. We could launch another large benchmark bond during 2002.

Is the republic still intending to hold a global investor roadshow, especially given this year's dramatic political changes in the Philippines?

We have not halted our plans to arrange an international roadshow and agree that it is very important to explain this year's significant changes in the Philippines to the global investor community.

What is likely to be the Republic of the Philippines' international finance raising requirement in 2002, and will the sovereign look to access either the euro or yen denominated markets as part of its funding needs?

Our plan is to raise $1.5bn in the international capital markets for the republic over the course of 2002. On top of this, state owned power company National Power Corp (Napocor) also has financing requirements of $1bn. If we decide it will be easiest to fund Napocor through international commercial financing, we would probably look to launch deals through the republic's name. It is approximately 70bp-100bp cheaper for the sovereign to do so than Napocor itself.

With regards to other currencies, we are looking actively at both the Japanese yen and the euro markets for fundraising opportunities, mainly to help maintain our liability profile. The timing of any potential transactions is uncertain, but we have received several proposals for potential yen denominated bonds, and a few less for euro issues.

As a result, it is likely that our finance raising next year will incorporate a good mix of yen and dollar financing at least, and we could look to raise financing through the euro market as well, depending on market conditions.

How important is it for a sovereign such as the Republic of the Philippines to be seen to maintain a benchmark presence in the international bond markets?

Maintaining a benchmark is an important aspect of sovereign issuance, especially as the government is not the only issuer from the Philippines and domestic corporates also require a good benchmark to operate from.

But we always need to balance our budgetary constraints and the cost of financing against the importance of setting a benchmark.

Given the declining international interest rate environment, what are the most important factors influencing when the republic will arrange its next international bond issue?

Several of important factors will affect the timing of our next international deals. Firstly, we have to look at the price available to us and then must consider the volatility of market conditions at the time. Recent market conditions have been quite volatile, following the financial concerns surrounding Argentina in July and August.

The international perception of the Philippines is also very important, and this is something of which we will have a better understanding after our non-deal roadshow. Of course, the republic's own financing requirements also play an important role in deciding how and when to access the international markets for commercial financing.

Assuming that the pricing levels are reasonable, and if market conditions improve, our next international transaction is likely to come some time between December and March.

The BoTr recently raised $220.4m by swapping two peso deals into dollars. Why did the government decide to start using derivative products in such a manner and can we expect to see any further innovative funding options in the coming months?

We decided that the use of swaps would help develop the securities market in the Philippines, and also help us achieve cheap financing through the securities market. Comparing the spreads achieved on the swap with international spread levels at the time, we achieved a good cost saving, benefiting the government while creating a new product for the domestic market.

For the future, we are looking at new funding alternatives, including the creation of dollar-hedged peso bonds, which we hope to launch by the end of September. These bonds will give the holder the ability to hold the peso as currency, while receiving a coupon based on dollar rates.

How is the government aiming to increase the importance and complexity of the domestic market, as a source of public and private funding?

Aside from the example of the recent swapped transactions, we are looking to introduce zero coupon bonds into the domestic bond market and are seeking authorisation from president Gloria Macapagal-Arroyo and looking to gain approval from the Central Bank of the Philippines (BSP).

Local insurance companies are very keen to arrange zero coupon bonds and we need to establish some benchmark issues to help initiate the market. We hope to launch the first bonds of this type in October.

We are also consulting with the Bankers Association of the Philippines to establish a new dealership network that will conform to international standards, and are speaking with the BSP with regards to creating an improved delivery system. We are also introducing reforms with regards to both dealership and the infrastructure of the market. All these measures should improve both market confidence and liquidity in the domestic bond market. *

  • 23 Sep 2001

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Rank Lead Manager Amount $m No of issues Share %
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1 Citi 241,652.19 924 8.19%
2 JPMorgan 223,721.63 996 7.58%
3 Bank of America Merrill Lynch 216,064.78 722 7.32%
4 Barclays 184,894.55 671 6.27%
5 Goldman Sachs 158,954.58 518 5.39%

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Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 32,522.19 61 6.56%
2 BNP Paribas 32,284.10 130 6.51%
3 UniCredit 26,992.47 123 5.44%
4 SG Corporate & Investment Banking 26,569.73 97 5.36%
5 Credit Agricole CIB 23,807.36 111 4.80%

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Rank Lead Manager Amount $m No of issues Share %
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1 Goldman Sachs 10,167.68 46 8.81%
2 JPMorgan 9,894.90 42 8.58%
3 Citi 8,202.25 45 7.11%
4 UBS 6,098.17 23 5.29%
5 Credit Suisse 5,236.02 28 4.54%