What was originally expected to be a Ps2 billion 25 year transaction has been launched as a Ps5.286 billion deal on the back of strong demand and positive perceptions about domestic interest rates. Led by HSBC, with Bank de Oro as joint underwriter, the issue was priced earlier this week at par with a semi-annual coupon of 18.25%, representing a 5.75bp premium to the Republic's outstanding 20 year bond.
Pricing has come in significantly tighter than expectations of a 25bp to 55bp premium to outstanding paper. However, this largely reflected movements in underlying rates between the setting of a back-stop bid at 37.5bp over and the completion of the Dutch auction process a few hours later.
Bankers report that books were just over three times subscribed, with an average reported bid of 17.977% and a lowest bid of 16.911%. Distribution saw 74% of the bonds placed with domestic banks and the remaining 26% with insurance companies and trust departments. Virtually all will have been taken on a buy and hold basis.
"The Republic hasn't done a long dated deal since its 20 year in April 1997," comments one banker, "so there was pent-up demand for a long dated asset to offset investors' long-dated liabilities."
International demand was said to be non-existent, since the security offers no pick-up to the sovereign's existing dollar-denominated bond due 2025. This issue is currently trading at a bid/offer spread of 824bp/797bp over Treasuries, or about 700bp over Libor. On a swapped basis, bankers say that the Republic's domestic bond would come flat to these levels, once the country's 20% witholding tax is taken into consideration.
"For the Republic, it was a very cost efficient deal," the banker adds. "It has on-the-run securities in two years, five years, seven years, ten years and now 25 years."
By comparison, no other Asian sovereign has yet breached the 20 year mark in its domestic market. India and Taiwan currently have 20 year bonds outstanding and Thailand launched a 15 year deal earlier this year. Malaysia, Singapore and Hong Kong have so far extended out to 10 years, while Korea lags the whole pack on five years.
