An increased $350 million four year deal was priced by JPMorgan yesterday (Wednesday) at a 30bp Libor premium to the Philippines interpolated curve. In paying a premium, the bank stands virtually alone among the year's borrowers, but in doing so, has bowed to more difficult new issuance conditions in the wake of September 11.
The success of the deal, which started life as a $200 million offering, has been attributed to a three day spread rally and on a more general level, to the traditional stability at the short-end of the curve where the deal was pitched. As one banker comments, "This is just about the most stable asset a foreigner can buy from the Philippines. In volatile conditions, spread widening at the short-end of the curve never lasts for very long because local retail investors move in to tighten it back again."
Pricing of the 2005 transaction came at par with a 9% coupon to yield 517bp over five year Treasuries, or 545bp over the interpolated curve. Bankers report the participation of 50 investors, of which 90% came from Asia, with the remainder comprising a handful of European retail accounts. The largest individual ticket was said to have been for $35 million.
Observers comment that the BSP chose four years because this maturity complements the RepublicÆs existing curve. For example, there are a number of maturities coming due in 2006, of which the most prominent is a $1 billion 9.5% 2024 bond puttable that year. There is also an 8.5% August 2004 bond, which marked the BSPÆs last foray into the international fixed rate markets.
This $300 million deal was launched in 1999 via JPMorgan and since then, the BSP has confined itself to the bank market, only re-entering the bond markets in April this year with a $130 million FRN also via JPMorgan. In terms of winning the new mandate, the bank is said to have just edged out Salomon Smith Barney, the firm responsible for the central bankÆs $500 million offering of 1997.
The Philippines has the most populated curve of any Asian borrower and also one of the most uneven in terms of respective spread levels. Bankers consequently argue that it is important to look at the technicalities and liquidity of each particular bond when making pricing comparisons between them. Some also point out that the BSP has tended to trade at a premium to the Republic despite the fact both are pure sovereign entities.
Says one banker, "The BSP can trade at anything between a 25bp to 75bp premium over the sovereign. This is largely because it hasn't had such a good track record executing well received deals."
Non-deal roadshows for the Department of Finance will also begin in the US on Monday via JPMorgan and Morgan Stanley. As the Republic will not be visiting Europe and Asia this time, the other mandated banks û HSBC and ING Barings in Asia and CSFB and Deutsche in Europe û will not be participating. But bankers believe that the likelihood of a bond issue emanating from the Republic has also increased given NapocorÆs difficulties completing a $400 million seven-year transaction via Bear Stearns.
Many remain skeptical that the power utility's deal will ever see the light of day, not least because the lead manager has very little experience in the Asian bond markets. With a $500 million shortfall before the end of the year, however, the company is in desperate need of funds. It announced today that it is seeking an extension on a $114 million loan from ING Barings, which falls due in November.
Proceeds from the BSP deal will be used to bolster foreign exchange reserves in the face of falling exports. To the end of September, the Republic had $14.5 billion in reserves and 4.3 months of import coverage.