After a confused and heavily criticised start to its 2004 funding programme, the Republic returned to the market yesterday (Tuesday) with a well-considered tap of its 2011 and 2014 bonds. The Philippines has been the star performer of the Asian bond markets over the past month as investors start to factor in the possibility of an Arroyo victory in the country's Presidential elections.
Having waited for a 100bp of spread tightening before making its move, the sovereign looks like it might have cleverly timed the top of the rally and investors must be asking themselves how much upside is still left. Raising a total of $400 million, the fundraising was split into two equal tranches of $200 million.
The February 2011 bond was re-opened at 100.964% to yield 8.184% or 375bp over 10-year Treasuries and 373bp over Libor. Fees for lead managers Deutsche Bank and Morgan Stanley were12.5bp.
The January 2014 was re-opened at 98.454% to yield 8.484% or 405bp over Treasuries and 353bp over Libor. When the two deals were first announced on Monday, the 2011 bond was trading at 102.25% and the 2014 at 99.5%. Once indicative pricing was released at 375bp and 405bp over Treasuries, both issues traded down to 101% bid and 98.5% by the time the tap priced.
This equated to respective yields and Treasury spreads of 8.17% and 374bp (2011 bond) and 8.447% and 404bp (2014 bond). This meant the two taps were priced 1bp wide of the bid side of the market.
The final order book came to $600 million, split about $280 million of demand for 2011 and $320 million for the 2014. The former numbered 49 investors and the latter 33 investors, with about 50% of overlap between the two.
By geography, the 2011 saw 54% placed into Asia, of which 90% went into the Philippines, 23% into the US and 23% into Europe. By investor type, banks took 59%, funds 36%, retail 4% and insurance companies 1%.
The 2014 saw 48% placed into Asia, of which 70% went to the Philippines, with 32% placed into the US and 20% into Europe. By investor type 53% went to funds, 36% to banks, 10% to insurance companies and 1% to retail.
Some market participants believe the two deals may have about 15bp of upside left in them over the near term, but believe anything significantly more than this requires a change in fundamentals, which even the election of Arroyo is unlikely to achieve given the deterioration of the Philippines' credit during her first term in office. Spread tightening has co-incided with the release of a number of opinion pools suggesting her lead over Fernando Poe is widening from 5% to 10%.
Ahead of the announcement of a tap, the 2011 bond had tightened 101bp in Treasury terms over the last four weeks and the 2014 by 99bp. Proceeds from the new deal are being on-lent to Napocor and with an extra $400 million under its belt the Republic is now more than halfway to meeting its 2004 needs. According to Barclays Capital, the sovereign, central bank and Napocor have now raised $3.4 billion towards $6.3 billion in debt servicing requirements for 2004.