A Y61.75 billion ($500 million) twin tranche issue for Psalm (Power Sector Asset Liabilities Management Corp) was priced last night by Nomura. The deal carries guarantees from both the Republic of the Philippines and Asian Development Bank (ADB) and marks the first co-financing for a Philippines credit in Yen since a Nexi deal for the sovereign last December.
Like many deals for the National Power Corporation (Napocor), the current 18 and 20 year deal has been some months in the making, but ultimately appears to have proved successful because it could offer a risk/reward profile that suited the needs of long-dated Japanese investors.
One Y24.75 billion tranche of 18 year paper was priced at 99.457% on a coupon of 3.2% and one Y37 billion tranche of 20 year paper at 99.645% with a 3.55% coupon. On a dollar libor basis, this is said to equate to a mid 200bp level. Moody's has assigned a Baa1 rating, three notches above the sovereign Ba1 ceiling.
Both tranches have principal guarantees from the ADB and full principal and coupon guarantees from the sovereign. The ADB has also guaranteed the last 10 years of coupon payments on each tranche to give the overall deal a roughly 35% ADB risk component.
Officials say that Japanese investors are happy to take the first 10 years of pure Philippines risk and compared pricing to equivalently rated deals for credits such as Tunisia, which similarly pay 3% plus coupons. Allocated on a private placement basis with no further syndicate, paper is said to have gone to just a handful of domestic institutions, mainly comprising life insurance companies and a few asset managers.
In addition to the Yen transaction, the Philippines still has $250 million on its shelf and is supposed to be issuing an ADB dollar co-financing in the new year under the lead management of Salomon Smith Barney. However, many do not believe it will see the light of day because dollar-based investors are not likely to accept the first 10-years of sovereign guaranteed risk for Psalm without a hefty pricing premium over the sovereign curve.
The dollar denominated deal was also set to use a rolling coupon guarantee structure, which has become discredited since Argentina defaulted on a $250 million zero coupon bond issue guaranteed by the World Bank in mid-October. Prior to Argentina's default, it had been widely assumed that no borrower would default on such debt because failure to re-pay the coupon after a 60-day grace period would result in the other acceleration of other World Bank loans to the issuing country. In November, however, the World Bank said that it would waive Argentina's event of default clauses.
