Lead managers HSBC, Salomon Smith Barney and UBS Warburg priced a new dollar 10-year for the Republic of the Philippines after New York's open (Monday) raising a further $500 million for the embattled borrower.
Pricing came at 99.205% on a coupon of 9% to yield 9.125% or 507bp over Treasuries. This was in line with expectations on Friday when the deal was delayed because of erroneous reports that Finance Secretary Jose Camacho had resigned. The only additional sweetener has been the inclusion of a short rather than a long first coupon, which means the Philippines will pay 21 rather than 20 coupons on the deal, which matures in February 2013.
At these levels, pricing has come at 17bp to 30bp premium to the Republic's outstanding 2017 bond, which is puttable in 2012. The difference between the two levels stems from the fact that some traders have been quoting it off 10-year Treasuries and others off an interpolated curve.
Observers say about 45 investors participated in a book which closed marginally oversubscribed around the $700 million level. US investors were not quite as dominant as they have been in recent deals, but they were nevertheless still the swing factor and took up 36% of allocations, with 46% going to Asia and 18% to Europe.
By investor type, private banks came in for about 15%, with the remainder split almost equally between banks and asset managers. Specialists guessed that about a quarter of bonds went back to the Philippines.
Considering how unsettled the book had been on Friday, the leads appeared to have had a relatively smooth ride on Monday and were aided by three co-managers, Credit Suisse First Boston, Deutsche Bank and Morgan Stanley. Each took 1% of economics, while overall fees totaled 22bp.
Unlike most Asian bond deals this year, the Philippines has priced at quite a wide premium to its outstanding curve and this is likely to be interpreted as a warning shot from investors about its funding plans and strategy for 2003. However, the fact that it managed to price a market clearing while resisting pressure to widen indicative pricing even further will go some way to counterbalancing its critics.
Bankers say that 2003 is shaping up to be a record breaking year for the Republic, with estimates of up to $4 billion being needed, if the figure includes nearly $2 billion for the National Power Corporation (Napocor). Confusion about exactly how much the Republic needs next year, how it intends to go about raising it and whether proceeds from the current deal are being on-lent to Napocor have been cited by some bankers as the main reason why the current deal struggled to find early momentum.
Indeed, Napocor itself is believed to be contemplating a new sovereign-backed transaction in place of a dollar deal with an ADB guarantee, which is not now likely to be launched. UBS Warburg is said to be taking the company on a "non-deal roadshow."