Republic of the Philippines prepares new dollar deal

The government has changed tack once again, abandoning plans for a non-deal roadshow in favour of a lightening strike on the international debt markets.

Aping the perceived success of Malaysia's $1 billion bond issue of last week, the Republic of the Philippines is asking banks to make immediate bids on a $500 million transaction of its own. The new strategy, which has caught most of the country's relationship bankers off guard, follows the postponement of a non-deal roadshow, originally scheduled to begin in Asia on Tuesday.

After shifting the start date around a couple of times, the Republic is now said to be in favour of selling its story to investors in September and pushing a deal out in the interim period. Bankers believe the main reason for delaying presentations is the 'state of the union address' scheduled for July 24.

"It's a bit difficult trying to go out and give investors a comprehensive picture when much of the underlying strategy is still in the process of being finalized ahead of a major domestic policy address," one banker explains. "The last thing the government wants to do is contradict itself."

The Treasury appears to have swung in favour of a quick fire deal in a fear that the bull market may slip away should it wait to September. Like Malaysia, the Republic also does not want to hold itself hostage to market conditions, should it embark on lengthy roadshows under the guidance of its seven mandated banks: HSBC, Nomura and ING Barings in Asia; Credit Suisse First Boston and Deutsche Bank in Europe and JPMorgan and Morgan Stanley in the US.

“The Fed easing was less than the market had been expecting and Treasuries have backed up,” one banker comments. “There’s a growing feeling that the second half might not be that easy and it seems sensible to lock in rates now while the liquidity is still there.”

Forsaking roadshows in favour of coming straight to market was a strategy formerly pursued to great success in the first half of 1999, until the endless taps and re-openings alienated an investor base that felt betrayed by a lack of communication.

Many country experts consequently believe that while the liquidity of the current market supports early issuance, the country's fractious relationship with its investor base suggests that some form of presentations would be politic. "This has been a year of tremendous upheaval in the Philippines and the government really needs to tell its story again,” a second banker argues.

Others also note that while the country may want to make a quick return, it only has $400 million left on its shelf and the turnaround will have to extremely quick if the BB+/Ba1 rated credit is to get a deal out before the August recess. Benchmark deals from the Philippines have always carried a full SEC registration and relationship bankers do not advocate breaking the pattern with a 144a deal.

All remain agreed, however, that should the sovereign gets its strategy right, a new 10-year deal is likely to meet with strong demand. The fall of the Estrada government has made the Philippines one of the region’s best performing credits this year, with the 2010 deal currently quoted at 487bp over Treasuries, compared to a roughly 750bp peak in mid-November.

“We’ve been seeing international demand for the Philippines and it’s only been broken over the past couple of days because of events in Argentina and Brazil which always have a knock-on effect in the Philippines,” says one local expert. “The EMBI was pushed out 30bp yesterday,” he adds.

Finance Secretary Joes Camacho was also quoted in the local press yesterday, saying that the government is planning to increase the amount it raises from the international markets this year. On top of the $750 million still left to raise under its foreign borrowing programme, he said the government intends to transfer an additional $500 million from its domestic borrowing programme to make sure it does not crowd out other borrowers.
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