For the fourth year running the Republic of the Philippines has become the first Asian sovereign to tap the new year's Asian debt capital markets. In doing so, the ROP is treading a well worn path of coming to the debt market during the first two weeks of the year in order to take advantage of the plentiful liquidity available in January when investors are at their most fresh.
The new $2.1 billion deal is a record breaker for the country and was priced in New York on Wednesday afternoon (January 4) under the lead of Citigroup, Credit Suisse First Boston, Deutsche Bank and UBS. The large size was not unexpected given initial estimates of the country's fundraising requirements this year.
Many market observers had expected the Philippines to raise up to $5 billion in 2006. However, as late as yesterday, National Treasurer Omar Cruz was reiterating his earlier estimates that the sovereign will raise more like $3.1 billion from overseas debt issuance, with the balance of the budget deficit shortfall sourced from multi-lateral and FDI sources.
The new eurobond has been split into a $1.5 billion 25-year offering and an Eu500 million 10-year tranche. Together, they represent the largest deal from Asia since Hutchison Whampoa's multi-tranche fundraising in the autumn of 2003.
The dollar denominated tranche was priced at 98.641% on a coupon of 7.75% to yield at 7.785%, or 333.5bp over US Treasuries. This 2031 tranche has priced flat to the Philippines' own outstanding 2030 deal.
The Euro tranche priced at 99.112% on a 6.25% coupon to yield at 6.375%, equivalent to 309.6bp over US Treasuries or 294bp over mid-swaps. This represents the lowest coupon ever for an ROP deal at this maturity.
Both tranches were heavily oversubscribed, with the dollar tranche closing eight times oversubscribed with a total of 400 accounts and the euro tranche about seven times with a total of 230 allocated paper. In total, the final order book closed just south of $15 billion.
In terms of distribution, The dollar tranche was sold 40% to Asian accounts, 35% in the US, and 25% to Europe. Fund managers bought the majority of the paper with 40% allocated, banks bought up 20%, insurers 13% and the remaining 8% going to retail investors.
The Euro deal was broken down 58% Europe, 30% Asia and 12% US. Fund managers again were the biggest buyer of the deal at 59%, followed by banks at 18%, retail investors at 15% and insurers the remaining 8%.
The new deal's strong reception underscores investors' confidence in the way the Philippines has been conducting its funding strategy of late. In 2005, the ROP was able to re-salvage its reputation by setting an annual funding target and sticking to it with rigour.
Many observers believe this steadfast approach will augur well going forwards. The Philippines' curve tightened over 100bp during 2005 in response to improving public finances as a result of new tax measures.
Some analysts now think the rally has been overdone. However, if this does prove to be the case, it will conversely reinforce the astute timing of the new deal, as a result of which the Philippines has now raised the majority of its 2006 borrowing requirement upfront.
