Philippines prices global

Strong demand sees the Republic increase its global bond offering and on-lend $250 million to the National Power Corporation (Napocor).

Priced after a one-day bookbuild, which closed lunchtime in New York (Wednesday), the Republic of the Philippines has raised $750 million from an SEC-registered global bond offering jointly led by Credit Suisse First Boston and Morgan Stanley. Representing the country's first major dollar benchmark in nearly two years, the 15 put 10 offering appears to have caught a strong wave of demand, which led books to close at the $1.8 billion mark and enabled pricing to come 12.5bp through initial guidance at the 450bp level.

With a final maturity in 2017, the transaction was priced at 99.331% on a coupon of 9.375% to yield 9.48% or 437.5bp over 10-year Treasuries. At this level it came about 15bp over the theoretical trading level of a 2012 bond on the Philippines' interpolated curve.

Initially viewed as a $500 million offering and increased to $750 million, the deal also incorporates the $250 million private placement the government had previously been in the process of finalizing with Credit Suisse First Boston before it suddenly decided to change tack on the day of pricing. In addition to the two leads, JPMorgan was also assigned a co-manager’s slot with a 1% allocation.

Having listened to its relationship bankers, the Department of Finance starts the year on the best possible footing - raising the majority of funds needed to bridge its budget deficit and opportunistically doing so at the crest of a wave of positive sentiment towards a BB+/Ba1-rated credit, which many do not expect to be upgraded anytime soon.  

A total of 205 accounts consequently participated in the deal, resulting in a geographical split, which saw 40% of paper allocated each to Asia and the US, with Europe taking the remaining 20%.

From Asia, there were said to be 60 accounts, of which about 60% of buyers came from Hong Kong and Singapore. From Europe, there were said to be about 70 accounts, with the UK, Germany and Switzerland predominating followed by a smattering of interest from Italy, Scandinavia and the Benelux. From the US, there were said to be 75 accounts including insurance funds, real money accounts and asset managers. The majority of US buyers were said to be dedicated emerging markets funds topped up by a small number of crossover accounts.

Observers note that one of the most striking features of the syndication process was the interest from accounts that had not previously taken advantage of the rallying spread environment for Philippines' paper.

"A lot of funds missed the rally and had been finding it hard to get hold of bonds in the secondary market," one observer reports. "A lot of the longer-dated bonds on the Philippines curve have been trading very technically, so this transaction was ideal because it offered them an opportunity to get into a sizeable and liquid issue."

A second adds, "Last year the Philippines launched a large number of small-scale deals that wouldn't have been of interest to the big index buyers. This is the country's first sizeable deal of note for some time."

Since emerging market funds began to accelerate their departure from Argentina during the fourth quarter of 2001, about $500 million to $600 million is estimated to have been re-invested in the Philippines. It has resulted in a sharp contraction in spreads, which has seen the previous benchmark bond due March 2010 tighten in almost 250bp in the space of two months, closing yesterday (Wednesday) at 410bp bid.

With demand sated by the new issue, many will now be watching to see if the rally can continue. Country experts will believe that it can. "From a total return perspective, this is a good play," one argues. "It's a name that's been out of the market for a while and is looking like the only one that will issue in size for some time. There are a lot of accounts looking to re-weight in Asia."

"What's bizarre," a second country expert continues, "is that the longer the rally lasts, the more accounts want to buy into it."

Taken alongside the $400 million equivalent raised from the yen markets at the end of last year via a Nexi-guaranteed issue, the Republic is now almost two-thirds of the way through its 2002 fundraising quota. Government officials have said they hope to source $1.48 billion from the bond markets this year to meet a projected budget deficit of Ps130 billion. On top of this, the government is also likely to continue raising funds for Napocor, which has cash requirements of $1 billion.