Philippines beats Indonesia with $1.5 billion bond sale

The Republic of the Philippines early yesterday morning priced a deftly executed $1.5 billion 15-year bond, getting its timing right.

In a deal that further burnishes its reputation as an issuer with astute timing, the Republic of the Philippines (ROP) closed its dollar bond early Tuesday morning, ahead of Indonesia’s expected deal.

The sovereign launched and priced its punchy $1.5 billion 15-year global bond close to a week after finalising a mandate. The deal gathered a solid $6.5 billion order book from 280 accounts and initially traded up a quarter of a point. It was quoted at a 99.495 reoffer yesterday afternoon.

The benchmark deal could help to reopen the market with a few issuers already announcing non-deal roadshows, including Citic Pacific in a deal arranged by HSBC and UBS.

“This is the kind of trade you want,” said one rival banker. “It took guts to come out with a trade amid the Libyan turmoil. They went ahead and it built a good book. It was a well-executed trade with no nonsense.”

Goldman Sachs and HSBC were global coordinators and bookrunners. Citi, Deutsche Bank, J.P. Morgan and UBS were also bookrunners.

Three of the banks that handled the Philippines trade — Deutsche Bank, J.P. Morgan and UBS — are also engaged as arrangers for the Republic of Indonesia’s bond sale, which some market participants suggested was a potential conflict of interest.

Indonesian officials updated investors at meetings in Europe and the US last week, and mandated the three banks before the Philippines sent out a request for proposals.

“I’d say there is a bit of a conflict of interest,” said one rival banker. “It’s up to the issuer eventually. If I was the Republic of the Philippines, I’d be thrilled with the outcome. If I was Indonesia, I would not be so happy.”

However, one banker who was on both deals robustly denied that was the case. “Indonesia has done a non-deal roadshow,” he said. “It doesn’t have a live deal in the market at the moment. I don’t see a conflict of interest. We’ve seen many instances where banks work on similar-type deals back-to-back, but I don’t think that’s necessarily a bad thing. It’s because they are good and at the top of league tables.”

The Philippines launched its SEC-registered deal at 11.30am on Monday morning and built a strong book of close to $3 billion from Asia at around 6pm Hong Kong time. The bonds were sold at a yield of 5.55%, at the tight end of the 5.55% to 5.60% final guidance. The initial guidance was in the area of 5.625%.

The new bonds maturing March 30, 2026 fill an existing gap in the Philippines’ maturity profile and develop an untested part of its yield curve. The Philippines has traditionally tapped the market with benchmark 10-year or 25-year bonds. Instead of pushing for a longer duration of 25-years this time, the sovereign picked a 15-year tenor, which enabled it to shore up support among onshore investors.

“The ROP doesn’t have anything due in 2026 so it fit into their maturity profile,” said a banker on the trade “The other obvious choice would have been a 25-year deal but, given how volatile markets are, they figured a 15-year would see more onshore participation,” he added.

Amid volatile markets, long duration bonds hold more risk, making it tough to sell the deal to investors. “The ROP 2034s were yielding 5.8% and the 30bp yield pick-up would not have been very attractive to investors,” said another banker on the deal. “The Philippines wanted to ensure that the deal traded well. It did not want to print a lame deal. I think they picked the right window.”

Investors in the Philippines took up 22%, the rest of Asia 18%, Europe 30%, and the US 30%. By investor type, fund managers took up 57%, banks 27%, insurers 9%, private banks 6% and others 1%.

The bonds offered a coupon of 5.5% and the deal paid a spread of 223.8bp over Treasuries. The Philippines is rated Ba3/BB/BB.

Elsewhere, China WindPower Group has mandated HSBC as sole bookrunner for a proposed renminbi bond offering.

¬ Haymarket Media Limited. All rights reserved.
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