Napocor's new RFP

The power utility seeks proposals for a $250 million issue with an ADB guarantee.

An RFP (Request for Proposals) was issued earlier this week for Napocor's long awaited dollar deal with an ADB guarantee. The mandate had previously been awarded to Salomon Smith Barney and Lehman Brothers, but fell apart last October after Argentina defaulted on a similar structure with a World Bank guarantee.

Banks have until April 1 to submit proposals to Psalm (Power Sector Asset Liability Management Corp). In the RFP the government agency says it is looking for 15 to 20-year debt and "in the light of the current environment will not entertain the re-instatement of a guarantee."

Bankers have interpreted this to mean that Psalm has abandoned the idea of a rolling coupon structure in favour of a ADB principal guarantee with some form of protection over the coupon payments. This could either be one coupon or a series of coupons, but either way it is likely to mean there will be a much higher Philippines risk component and hence pricing closer to the sovereign curve.

As such a number question why the sovereign is bothering with the idea in the first place. Some argue that the government is unlikely to realise many cost savings, while the structure is time consuming and investors do not like hybrid structures because they are difficult categorise. A longer tenor also means the Philippines natural backstop bid - its own banking sector - is unlikely to be an active participant and success will depend more heavily on price sensitive US investors.

However, even though all Napocor debt is a contingent government liability, the Republic is keen to differentiate the borrowing requirements of the two and a credit-enhanced deal should ease pressure on its own curve. Its last ADB guaranteed deal last November was also considered a success.

Nomura led a twin tranche Y61.75 ($500 million) billion twin tranche deal rated Baa1 by Moody's. A Y24.75 billion 18 year tranche was priced with a 3.2% coupon and a Y37 billion 20-year tranche with a 3.55% coupon.

This deal had a principal guarantee from the ADB and a principal and coupon guarantee from the Republic. The ADB also guaranteed the last 10-years of coupon payments to give the deal an overall ADB risk component of 35%.