October 6, 2022 | 00:00
MANILA, Philippines — The Marcos administration is making its debut in the international debt market with the issuance of dollars and green bonds, but higher borrowing costs may impact the amount that can be raised.
According to an issuance notice, the Philippines will borrow at least $500 million from foreign sources by offering five- and 10.5-year global bonds, as well as a 25-year durable bond.
This officially marks the Marcos government’s first global bond issue three months since taking office.
It is also the second dollar bond issuance for 2022 after the last venture by the Duterte administration in March.
The proceeds from the five- and 10.5-year bonds will be used for financing the general budget while the green bond is intended to refinance assets in accordance with the country’s sustainable financing framework.
With the latest decision to borrow abroad, Finance Ministry Secretary Benjamin Diokno said the government was being opportunistic.
In a Viber message, Diokno said: “75:25 [domestic:foreign source] this is the preferred blend. But sometimes you have to be opportunistic.
Earlier, Diokno said borrowing would focus on domestic sources to minimize the country’s currency risk arising from global uncertainties.
Rizal Commercial Banking Corp. Chief Economist Michael Ricafort said issuing dollar bonds is a way to diversify the country’s funding sources and provide ongoing liquidity to the Philippines’ global bonds on the international market.
However, he cautioned that currently higher borrowing costs could temper the amount the government can raise.
In the last dollar bond issue in March, the government raised $2.25 billion through foreign borrowing despite a volatile market at the time after the start of the Russian-Ukrainian war.
This time, soaring inflation and fluctuating currencies are weighing on economies around the world.
“The amount to be raised would be more conservative and prudent, also considering recent increases in funding and borrowing costs,” Ricafort said.
“It may also be necessary to hedge foreign borrowing given the currency risks involved,” he said.
Nevertheless, Ricafort noted that the country’s external debt-to-gross domestic ratio remains relatively lower than that of Asian countries with a similar rating.
He said this does allow for more leeway on foreign borrowing, but may still require hedging and caution to be on the safe side given the currency risks involved.
Meanwhile, New York-based Moody’s Investors Service assigned senior unsecured ratings of Baa2 to the government’s dollar-denominated bond offerings.
“The bonds to be issued under the existing government program filed with the Securities and Exchange Commission in the United States will constitute direct, unconditional and unsubordinated obligations of the Government of the Philippines,” Moody’s said.
He added that the bonds will rank pari passu or on an equal footing with all current and future unsecured external debt obligations of the country.
The rating also reflects the Baa2 credit rating held by the Philippines.
The notice listed BofA Securities Inc., Goldman Sachs, HSBC, JPMorgan Chase & Co., Morgan Stanley, SMBC Nikko Securities, Standard Chartered and UBS Group AG as joint lead managers and bookrunners for the issue.