The Republic of the Philippines (RoP) is planning to issue its second benchmark peso-denominated global bond early next year, according to various sources. A benchmark is typically at least $500 million in size. No RFPs (requests for proposals) have been sent out, but in the past the RoP has customarily held beauty contests before the Christmas break for its US dollar issues.
"The RoP is planning to issue a peso global instead of a dollar bond as the Philippine central bank does not want a US dollar liability," said a source.
A second peso global would also enable the sovereign to tap any pent up demand that was not fulfilled in its debut peso global in September. The Ps44.1 billion ($1 billion) 10-year bond was 13 times subscribed with particularly strong demand from emerging-market funds.
Since then, the country has also benefited from a ratings upgrade. Standard & Poor’s in November upgraded the Philippines’ long-term foreign currency-denominated debt by one notch to BB from BB-. Standard Chartered and Goldman Sachs were advisors to the Philippines for the rating.
According to a banker, the RoP wants to extend its yield curve and is looking at issuing a long-dated peso global. Under its charter, the longest tenor the Philippine sovereign can issue for senior debt (either in pesos or US dollars) is 25 years. “I think intuitively they would like to issue a 25-year bond to global investors – similar to what they are doing in the domestic market,” said one banker.
The RoP is currently in the process of issuing at least Ps60 billion worth of 10- and 25-year bonds in exchange for short-dated bonds. BPI Capital, First Metro Investment, HSBC and Land Bank of the Philippines are the arrangers for this domestic debt swap.
However, according to investors, a bond that stretches out to 25 years would be a tougher sell.
“I think a 20-year or 25-year peso global would be a bit more difficult to sell in the international markets," said Rajeev de Mello, head of Asian investment at Western Asset Management. "I am not overly enthusiastic. The underlying buyers of long-dated local currency bonds have usually been local investors, including pension funds and insurance companies, rather than global investors. And the Philippine sovereign yield curve is not very steep at the long-end.”
Bankers are also gearing up for other sovereign names that may come to market early next year. In January 2010, the Philippine, Indonesian and Vietnamese sovereigns all charged the G3 bond markets, pushing out US dollar bonds in quick succession. Whether there will be a similar rush in January next year is anybody’s guess, but some feel that if markets remain conducive, there could be a repeat performance.
“We could see the usual suspects issue early next year, provided bond markets remain open and equities are stable. There is still a lot of liquidity out there. The Philippines and Indonesia are ratings upgrade stories and I wouldn’t be surprised to see them issue. But it would be nice to see a diversification, [with] the likes of Mongolia coming to market,” said one debt capital markets (DCM) banker.
Although the Philippines is usually the first out the gate, Indonesia is another candidate to open the year. The Republic of Indonesia (RoI) is benefitting from expectations of a ratings upgrade. On December 1, Moody’s placed the country's Ba2 foreign and local currency bond ratings on review for upgrade in light of its economic resilience and improved government debt position.
In the second half of this year, the Indonesian sovereign shelved its plans for a sukuk, which was mandated to Citi, HSBC and Standard Chartered, and chose instead to print a ¥60 billion ($739 million) 10-year Samurai bond last month.
Although there has been chatter that the RoI is eyeing a rupiah global, investors feel that there is less incentive for Indonesia to do a local currency global than for its Philippine counterpart.
“Foreign investors can access the Indonesian domestic market quite easily already, unlike the Philippines where there are hardly any foreign investors in the domestic market,” said de Mello.
Meanwhile, it is highly doubtful that the Vietnam sovereign will issue a US dollar bond in January, with state-owned Vietnam Shipbuilding Industry Group's (Vinashin) debt restructuring still fresh in investors’ minds. Vietnam National Coal and Minerals Industries Group (Vinacomin) pulled its US dollar bond last month amid the fallout from Vinashin.
Standard & Poor’s yesterday downgraded Vinacomin’s rating to BB- from BB, to reflect the low likelihood of extraordinary government support to the company in the event of financial distress.
"There has been increasing uncertainty surrounding Vinashin's payment of its foreign currency indebtedness in the next 30 days and our expectation is that Vinashin might default on this debt," S&P analyst Wee Khim Loy said in a release yesterday.
A diversification of sovereign bonds would no doubt be welcomed by investors, but it is uncertain whether Sri Lanka will do another bond so soon. Mongolia remains a dark horse, although there has been talk that it could issue its inaugural sovereign bond in the first quarter of 2011.
