In early November, the Asian Development Bank (ADB) issued its maiden Philippine Peso bond. The triple-A rated supranational raised Ps2.5 billion from a zero coupon five-year deal came with an issue price of 65.31% and yield of 8.8%. This represented a spread of about 210bp below government bond yields.
How important was timing this deal to catch favourable market conditions?
Because of the relatively small size of the deal, we had full flexibility regarding the timing of the issue. Fortunately, when the deal did come to market, the market was wide open for ADB because there were no other issues in the market. But in actuality the timing of the deal was driven by the underlying loan. The borrower had submitted a request for a draw down on the loan and on that basis we decided to proceed with the bond issue. This is the first back to back funding transaction for ADB. Tthat is, the bond issue was exclusively designed to fund a specific Peso loan. The terms of the bond issue – amount, maturity, and timing – matched those of the loan
Were you surprised by the overwhelming support the bond received?
The reception was rather consistent with our experience in India, Malaysia, Thailand and China. I think it's a reflection of our triple-A rating. This is the first issue in the Philippine domestic market that caries a unanimous triple-A rating from all of the international rating agencies. This is the first issue by a foreign entity and a supranational, so it provides an opportunity for domestic investors to buy a truly internationally rated bond.
Do you think the deal underlines the domestic investor’s comfort level with the ADB?
That's a good point. Because the ADB is located in the Philippines, the level of familiarity with ADB among the investors is quite high.
Will you come back to the Philippine again?
For our debut peso bond issue, the government’s policy required us to keep the bond proceeds in Peso's to be used for funding development projects in the Philippines. So we weren't allowed to swap the bond proceeds into other currencies. If this policy continues next year, additional bond issues from the ADB will depend on demand for our peso loans. At the moment, I'm not aware of any additional peso loans in the pipeline, so it's difficult to say when we will look to issue new peso bonds next year. Basically it is demand driven, but, of course, the ADB is always ready to play a catalytic role in the Philippine’s private sector so I'm optimistic that there will be additional demand for Peso loans in the future, whether it’s next year or the year after it is difficult to say.
What is the ADB’s overall funding strategy for the Philippines?
From a funding perspective or treasury perspective, we only look at local currency bond markets if we feel confident that the market has developed sufficiently. In this regard, I can confirm that this the case with the Philippines as its bond market has developed quite well in recent years particularly in terms of a more regular government bond issuance, better secondary market liquidity, improved settlement infrastructure, and a well developed risk free yield curve. Our view is quite positive and I think that the success of our inaugural bond issue – in terms of subscription and the cost that we achieved demonstrates that the market is ready for the participation of foreign issuers and investors.
