The strong demand for the Philippines’ foreign bond offerings in 2020 even with the unprecedented challenge brought by the COVID-19 contagion has underscored international investor confidence in the country’s ability to quickly bounce back from the impact of this global crisis and regain its pre-pandemic growth momentum.
Finance Secretary Carlos Dominguez III said the low borrowing costs and tight spreads of these foreign bond issuances was the result of the Philippines’ strong fiscal position and favorable credit profile, which has remained at a high-investment grade rating of "BBB +" in a sea of credit-rating downgrades and negative outlook revisions worldwide amid the global economic turmoil.
In January, before the COVID-19 outbreak was declared a pandemic, the Philippines successfully returned to the euro debt market, raising 1.2 billion euros (about US$1.33 billion) from the issuance of its 3- and 9-year global bonds.
The Bureau of the Treasury (BTr) described the bond issuance as a “landmark” transaction as it was priced with its lowest coupon rate in the euro market and was the first-ever zero-coupon issuance of the Philippines in the international capital markets.
For the 3-year EUR600 million notes, the yield was 0.13 percent, which allowed the government to print at zero percent coupon with a spread of 40 basis points (bps) over the benchmark.
The spread was tighter than the initial price guidance for the bonds, which had a spread of about 65 basis points above benchmark, according to the BTr.
The 9-year bonds fetched a coupon rate of 0.70 percent, tighter than the o.875 percent during the Philippines’ of 8-year euro notes last year.
The debt papers also had a spread of 70 bps above the benchmark, tighter than the initial price guidance of 95 bps.
Dominguez said then that “the overwhelming response from the market for this landmark transaction underscores the international investor community’s deepening confidence in the Philippine economy amid the reforms put in place by the Duterte administration to sustain the country's high and inclusive growth in the face of the current geopolitical headwinds.”
At that time, the government had planned the euro bonds issuance as the opening salvo of its efforts to diversify funding sources for its aggressive “Build, Build, Build” infrastructure program and unprecedented spending for social services.
When the World Health Organization (WHO) declared the COVID-19 outbreak a pandemic in March, the government’s succeeding bond offerings in the global market were done to source emergency financing for the cash-intensive task of containing the spread of the virus, providing assistance to the poor and other vulnerable sectors along with businesses, and prepare the economy for a strong post-pandemic recovery.
In late-April, the Philippines raised US$2.35 billion in its sale of 10-year and 25-year US dollar denominated global bonds at record-low coupons despite what National Treasurer Rosalia De Leon said was an “environment gripped with pandemic fear.”
She described the Philippines as “a diamond in the sovereign issuance space” when it was able to price its 10-year global bonds at a coupon rate of 2.457 percent, which was 40 bps tighter than the initial pricing guidance of 220 bps above benchmark.
The 25-year notes were priced at 2.95 percent, which was 42.5 bps tighter than the initial pricing guidance of 3.375 percent area.
Following that float, Dominguez said “the strong demand for this bond issue demonstrates the resiliency of investor interest in the Philippine economy despite the global economic fallout from the COVID-19 pandemic.”
The government decided to defer the issuance of its renminbi-denominated panda and yen-denominated samurai bonds in the fourth quarter owing to strong liquidity in the domestic market.
Before the end of the year, the Philippines returned again to the global bond market, raising another US$2.75 billion on December 10 at even lower coupon rates than the April issuance.
Investor appetite remained strong for the Philippines’ third and final bond offering for 2020.
Its 10.5 year bonds were priced at 1.648 percent, at US Treasury spreads of T+ 70 bps after an initial pricing guidance of T+ 100 bps area, while the 25-year tranche was priced at 2.65 percent, which is 35 bps tighter than initial pricing guidance of 3 percent area.
Dominguez attributed the success of the most recent bond offering to the “international investor community’s recognition of the Philippine economy’s strong fundamentals despite the global economic downturn caused by the COVID-19 pandemic.”
“We believe this result indicated that international investors are aware of, and appreciate, the Duterte administration’s resolve to rebuild the domestic economy and its initial headway in steering it back to its pre-COVID growth trajectory,” Dominguez said.
“The prudent fiscal management and bold economic reforms that President Duterte put in place since he assumed office in 2016 are paying off. These initiatives have given the government headroom to spend on COVID-19 response even as it sustains its aggressive spending on infrastructure and other priority programs to revive the economy amid the global slowdown,” he added.
President Duterte’s prudent fiscal management also enabled the Philippines to raise US$7.62 billion from its multilateral and bilateral partners for its pandemic response measures.
Along with the US$5.1billion raised through the international commercial markets, the total amount secured by the government for its COVID-19 response as of Dec. 15, 2020 stands at US$12.72 billion.
The US$7.62 billion budgetary support financing came from the Asian Development Bank (ADB), World Bank (WB), Asian Infrastructure Investment Bank (AIIB), Agence Française de Développement (AFD) Group of France, Japan International Cooperation Agency (JICA), and the Korean Export-Import Bank – Economic Development Cooperation Fund (KEXIM-EDCF).
“Because of our strong macroeconomic fundamentals, we were able to quickly access funds from our development partners and commercial markets at very low rates and tight spreads, and for longer repayment periods,” Dominguez noted.
These borrowings were obtained with fiscal prudence in mind, Dominguez said, to ensure that the country’s deficit-to-GDP (gross domestic product) ratio remains in the mid-range of its Association of Southeast Asian Nations (ASEAN) neighbors and credit-rating peers.
“Considering that we are now in a low-interest global financing environment, the Philippines is in a very strong debt-management position,” Dominguez said.
Fiscal prudence will continue to be the norm under the Duterte administration “despite the many populist excuses to blow up the deficit and bury future generations in debt,” he said.
“We have solid footing in terms of our fiscal position, so we can afford a responsible level of deficit spending. Nevertheless, we will not abandon the administration’s prudent fiscal management,” Dominguez said.