The Philippines is considering selling overseas bonds to finance increased government spending and a widening budget deficit, Treasurer Roberto Tan said.
Seven banks including Credit Suisse Group AG, Deutsche Bank AG and UBS AG responded to the government’s invitation for bids to arrange the sale, Tan said in a phone interview today in Manila. “We’re still evaluating the proposals and haven’t decided on the amount, tenor, pricing and timing,” Tan said.
The Southeast Asian nation in September announced plans to sell US$1.5 billion in debt abroad in 2009, three times as much as last year, to fund economic stimulus spending and increase the supply of dollars during a global credit crunch. Emerging-market bond sales may rise 68% to US$65 billion this year, according to estimates by ING Groep NV.
“When international investors look at the Philippines, they probably take some comfort that it doesn’t have banking sector issues and still has a balance of payments surplus,” said James McCormack, the head of Asia sovereign ratings at Fitch Ratings in Hong Kong.
South Korea plans to borrow up to US$6 billion this year and Indonesia in November said it may raise about US$2.1 billion in dollar-denominated debt in 2009.
“We will proceed with the sale of global bonds when the need arises,” Choi Jong Ku, director general of the South Korean finance ministry’s international bureau, said today in a phone interview. “The overseas loan market is expected to improve this year.”
‘Faring Pretty Well’
The Philippines doesn’t have the “banking system stresses” that South Korea has and is better placed to meet its foreign debt payments than Indonesia, Fitch’s McCormack said. “In that regard, the Philippines is actually faring pretty well compared to others.”
Fitch is “comfortable with the current rating and the increase in overseas debt won’t change our current view,” McCormack said.
Fitch rates the Philippines’ foreign-currency debt at BB, two levels below investment grade. Indonesia also has a BB rating, while South Korea’s is A+, the fifth-highest of 10 investment-grade levels.
The Philippine government predicts its budget deficit will widen to the most in four-years as revenue collection falters because of slowing economic growth. Expansion may slump to 3.7% this year, which would be the slowest since 2001, according to official estimates.
“If you need to borrow, now is the best time when the market is optimistic,” said Jonathan Ravelas, a Manila-based strategist at Banco de Oro Unibank Inc., which has more than US$6 billion in assets under management. “Although it’s a bit expensive to borrow internationally, they’re making sure they have enough funds for the year.”
The yield on the Philippines’ benchmark 25-year dollar-denominated bonds fell four percentage points to 6.72% by the end of 2008, after rising to a record 10.73% in October, according to ING. Yields rose 2.2 basis points today to 6.74%. A basis point is 0.01 percentage point.
The government predicts its budget deficit will rise to 102 billion pesos (US$2.2 billion) this year from an estimated 75 billion pesos in 2008, when its overseas debt sales totaled a decade-low US$500 million. The Philippines also aims to maximise loans from the World Bank and Asian Development Bank this year, Tan said in October.