The Republic of the Philippines entered the international bond markets on behalf of Napocor last night (Tuesday) with an increased $750 million bond issue. The deal appeared to enjoy one of the most straightforward executions of a sovereign bond in recent months, with the government's smooth passage to market providing a striking contrast to the travails of its electricity utility just one week ago.
Books closed shortly after New York's open five times oversubscribed at the original issue size of $500 million, prompting a swift increase to $750 million. Under the lead management of Citigroup, Deutsche Bank and JPMorgan the 10.5-year deal was priced at the tightest end of an indicative yield range spanning 8.375% to 8.5%.
Pricing came at 99.138% on a coupon of 8.25% to yield 8.375% or 461bp over Treasuries. Similar to recent deals, fees were an extremely thin 17bp.
Observers say the Republic opted for a final maturity in January 2014 to avoid crowding out its curve in 2013 when it has $1 billion of paper due in February 2013. Bankers estimate that the Republic paid a new issue premium of roughly 7bp to 9bp after taking account the maturity differential between the February 2013 and January 2014 bonds. At the time of pricing, the 9% February 2013 deal was bid at 106.5% to yield about 8%.
A total of 220 accounts were said to have participated with a split, which saw 50% placed into Asia, of which half went into the Philippines, 30% into the US and 20% into Europe.
The deal was marketed on a yield basis because of volatility in underlying Treasuries, which have backed up over the past couple of weeks as equity markets continue to rally and funds flow from fixed income to equity portfolios. In the 24 hours to pricing, ROP bonds also widened about half to three quarters of a point in a reflection of weakness across all emerging market debt.
Prior to this the Philippines had managed to hold steady in the face of weakness in Latin American spreads. Some specialists put this down to the fact that the sovereign has been absent from the market for a couple of months. Primarily this was because it was waiting for Napocor to issue in its own name. Proceeds from the new deal will be on-lent to the group after it failed to price a $500 million 10-year transaction once investors started to demand a 125bp to 150bp pricing premium to the sovereign curve.
The Republic now has about $400 million left to fund for 2003, although it typically starts to pre-fund the next fiscal year in the fourth quarter.
