Thursday, 29 July 2010

Government borrowing $17B this year

Philippines to sell peso-denominated bonds overseas for the first time
Bloomberg, with Elaine Ramos Alanguilan

THE government plans to borrow P766.4 billion and to raise at least another $200 million this year to finance infrastructure spending, Finance Secretary Cesar Purisima said Tuesday.

He said the Philippines was confident it would win a higher debt rating under President Benigno Aquino III, and that it planned to sell peso-denominated bonds overseas for the first time in the next quarter.

“We will probably start issuing within the next three to four months depending on the market situation,” Purisima said.

The notes would have maturities of five-to-10 years and the sales would help “diversify our sources of funding and better manage our liabilities,” he said.

Mr. Aquino took office June 30, and his government has since outlined plans to borrow P766.4 billion or $17 billion this year—8 percent more than his predecessor’s target—to plug a budget deficit forecast to reach a record P325 billion.

Budget Secretary Florencio Abad said the administration was looking at what’s left of this year’s budget to finance priority programs and yet keep its expenditures within the deficit ceiling.

He said the previous administration had already spent 61 percent of this year’s P1.54-trillion budget, so that only 6.5 percent or P100 billion was left to spend on programs with a direct impact on social development.

“At a mere 6.5 percent of the total budget, [the P100 billion] offers very little room for flexibility to provide immediate and necessary development interventions for the remainder of the year,” Abad said.

Mr. Aquino on Monday pledged to build more roads and ports to help achieve an annual economic growth of at least 7 percent, a pace of expansion achieved just once in the last three decades.

The deficit might widen to 4 percent of the gross domestic product this year from 3.9 percent in 2009, Purisima said.

He told Bloomberg he aimed to reduce the shortfall to 2 percent of national output and increase tax revenue to 16 percent by 2013 to help win upgrades from credit-rating firms. Tax collection last year was equivalent to about 13 percent of GDP, he said.

The Philippines’ long-term foreign-currency debt ratings are Ba3 at Moody’s Investors Service and BB- at Standard & Poor’s, three levels below investment grade. Indonesia, Southeast Asia’s biggest economy, is rated one level higher at both Moody’s and S&P.

“We will get that upgrade; the sooner the better,” Purisima said.

“I do believe we should probably be rated at least equal to Indonesia.”

The Philippines would continue to sell foreign-currency debt abroad and planned to add to this year’s sale of debt to Filipinos working abroad, Purisima said.

The government sold $1.5 billion of dollar-denominated bonds and Y100 billion ($1.1 billion) of the so-called Samurai notes in the first quarter, and $500 million worth of dollar- and euro-denominated debt to Filipinos overseas in April.

The planned global issue of peso-denominated bonds would offer similar yields as local debt and at maturity would be settled in US dollars at the prevailing exchange rate, Purisima said.

The peso has strengthened 0.6 percent to 45.97 to the dollar so far in 2010, and has appreciated in four of the last five years.

The average spread on Philippine dollar bonds has shrunk to 198 basis points, or 1.98 percentage points above similar-maturity Treasuries, from 291 a year ago, according to JPMorgan’s EMBI Index.

The gap ended last week at 196, the lowest premium since May 3. The overall average spread on the EMBI+ index is 278 basis points.

“Peso global bonds is something we’d welcome,” said Edwin Gutierrez, who manages about $5 billion of emerging-market debt at Aberdeen Asset Management Plc in London.

“The dollar bonds have fallen so much in yield and investors need relatively higher-yielding bonds in local currency.”

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