Benchmark bond deals by the Philippines have become a familiar feature of the new year in recent times and the early-bird approach seems to have paid off once again. Thanks to its shelf registration with the Securities and Exchange Commission (SEC) in the US, the sovereign was able to move quickly to take advantage of a perhaps brief window of brighter investor sentiment.
The 10-year bonds were priced at 99.158, which gives investors a yield of 8.5% û equivalent to a spread of 599.9bp over US Treasuries and 20bp over the implied 10-year curve. Investors paid a very tight new-issue concession of just 23-24bp, which compares very favourably with similarly sized 10-year offers by Brazil and Colombia on Tuesday, and a $2 billion 10-year offer by Mexico in December, all of which paid premiums of between 40bp and 50bp.
This is partly explained by the strong Asian sponsorship of Philippine deals û 41% of the issue was picked up by regional investors, with 38% going to the US and 21% to Europe û because many of the region's investors are not heavily influenced by the premiums paid in international markets.
But the Philippines has also earned the right to pay slimmer premiums. During the past three years it has shaken off a reputation for erratic borrowing and become something of a model issuer. That experience certainly paid off in the current climate because, despite the improved conditions, investors are still only interested in quality borrowers who bring neatly executed deals.
"You can't jerk the market around and expect to get away with it right now," says one source. "You can't go out with guidance and then tighten, and tighten again. The market will reward you for being clear and consistent in your intentions right from the start, and that's exactly what the Philippines has done."
Some reports have suggested the deal was upsized, but it was never officially touted as anything other than a benchmark offer, according to one source. The market was therefore expecting a $1 billion deal, but when it became clear that demand from investors could support a bigger deal, at the same pricing, the government opted to fulfil its entire borrowing requirements for the year in a single stroke.
In total, the lead banks û Credit Suisse, Deutsche Bank and HSBC û took $5.8 billion of orders from 281 investors. Funds dominated demand for the bonds, accounting for 58% of the orders, followed by: banks (20%); pension funds, insurers and government institutions (16%); and retail and corporates (6%).
The success of the deal proves that borrowers can raise money right now and ought to encourage other issuers into the market. The Korean policy banks have not yet mandated deals but are expected to be next in line to do so. As for the sovereign market, Indonesia now has a blueprint to follow that should allow it to bring a successful offer of its own û so long as the window stays open long enough.