The Philippines Government recently became the first in Asia to borrow money from the international debt markets. This came with the sale of $1.5 billion in bonds to a variety of investors across the planet. What are these bonds all about and what sort of impact is the issuing of them likely to have?
What Are the Bonds All About?
These are ten-year bonds with a 3.75% coupon rate attached to them. The reason for issuing them is to borrow money that will be paid back by the Government at the end of the ten years. In the meantime, investors gain interest at the coupon rate. The sale of the bonds was coordinated by the following major financial firms; Bank of China, JP Morgan and Standard Chartered Bank.
Funds raised in this way are ultimately expected to be used to meet the financial demands of improving the country’s infrastructure. The proposed budget by the Duterte administration for 2019 is for P3.757-trillion ($71.8 billion). This represents over 19% of the GDP and is 13% bigger than the figure for the 2018 budget. The priorities for the budget have been stated as infrastructure and education.
It is possible that these bonds are traded in a number of ways during the ten-year period. Bonds like these are commonly traded by investors, either on their own or as part of financial instruments such as CFDs and bond funds, with global government bonds being among 15,000 financial markets available as CFD trading options on well-known trading platforms such as IG.
High Levels of Demand
National Treasurer Rosalia V. de Leon has reported that the sale met with strong levels of demand. In fact, she said that the sale was subject to $4 billion in offers. This suggests that there is a high degree of confidence in the overall economic plans put forward by the country. The bonds received a ‘Baa2’ rating from Moody’s Investors Service and a “BBB” from S&P Global Ratings and Fitch Ratings.
Where do the investors in these bonds come from? 37% of them were sold in Asia, while 35% went to buyers in Europe. US sales accounted for the remaining 28% of them. In addition, it was reported that over half were sold to asset managers, with 22% bought by banks.
Finance Secretary Carlos G. Dominguez III commented that the success of this sale showed “deepening investor confidence” in the way that the Duterte administration is showing its “ability to maintain fiscal discipline.”
This is unlikely to be the last sale of bonds that we see from the Philippine Government this year. The central bank has already given the go-ahead for the release of bonds totalling between $500 million and $2 million in 2019.
Plans include the issue of Samurai and Panda bonds, in Japan and China respectively, later in 2019 or else in 2020. This follows on from the hugely successful launch of the country’s first Panda bonds in 2018. The administration is also said to be considering their first sale of Sterling bonds as well.
The apparent success of the latest bond issue seems certain to encourage the Philippine Government to carry on with their strategy of selling debt bonds to help fund their plans for the future of the country.