Philippines closes dollar bond exchange

In keeping with Philippine Treasury Secretary Cruz's disciplined approach to funding, Goldman Sachs and JPMorgan complete the Republic's third exchange.
The Republic of the Philippines has completed an exchange of existing dollar-denominated bonds for two new longer-dated benchmark securities.

Managed by Goldman Sachs and JPMorgan, the programme is the third instalment of the sovereignÆs liability management programme. The two previous consolidation programmes were for peso-denominated debt.

Eligible bonds consisted of the outstanding 7.50% bonds due 2007, 8.875% bonds due 2008, 8.375% global bonds due 2009, 9.875% global bonds due 2010, 9.00% global bonds due 2013, 8.25% global bonds due 2014, 8.875% global bonds due 2015, 8.75% fixed-rate bonds due October 2016, 9.375% global bonds due 2017 and 9.875% bonds due 2019.

These were exchanged for newly issued US dollar-denominated amortizing global bonds due in 2024 and maturing in three instaliments in 2022, 2023 and 2024.

The Philippines sought to issue a 17-year bond in order to establish a benchmark between its 10- and 25-year curve.

Simultaneously, the sovereignÆs 9.50% US dollar-denominated global bonds due 2024 and the 10.625% global bonds due 2025 were offered to be exchanged for a re-tap of the existing 7.75% global bonds due 2031.

The Republic also announced that it will issue $10 million of new 2024 bonds for cash.

In total, roughly $1 billion on original principal amount of old bonds will be retired. While the sovereign expects to issue $1.2 billion aggregate principal amount of new global bonds, consisting of $764 million of amortizing bonds due 2024 and $435 million of the re-tapped bonds.

The new 2024 priced at 200bp over mid-swaps on a price of 101.156% with a coupon of 7.50% to yield 7.3795%.

The re-tap priced at 103.341% to yield 7.449%.

The Philippines offered a clearing spread of 200bp for the 2024 bonds, and 205bp for the re-tapped bonds.

The exchange was completed on September 13 and will settle on September 25.

The new benchmark bonds will inject much needed liquidity into deals that have had little active trading records. The exchange helps to alleviate the issue of high cash prices among the existing bond deals, which were completed when the PhilippineÆs tended to issue at a much higher premium. Its 2019 bond currently trades at around the 123% level while its 2025 bond trades at 127%, meaning that holders of these bonds face liquidation difficulties.

Furthermore, the high cash prices of the existing bonds diminish their overall convexity, giving them a tendency to outperform in market extremes such as rallies and sell-offs, making them much less attractive.
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