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WRAPUP 1 – Manila may scrap “retail bond issue”, eyes offshore

Posted on: June 19, 2009

Reuters – Friday, June 19

* Philippines may cancel or delay retail Treasury bond issue

* ADB favourably considering Manila’s $500-million loan

* Manila now says studying $500 mln-$1 bln Samurai bond

By Karen Lema

MANILA, June 18 – The Philippines may cancel or delay a domestic retail bond issue in favour of cheaper offshore options as the government looks for ways to fund a record budget deficit this year, senior government officials said on Thursday.

Philippines government bond yields, which had been rising in anticipation of a big government borrowing programme, fell back on news that Manila’s offshore options seemed to be increasing.

The Asian Development Bank said it was favourably considering a request by the Southeast Asian nation for a $500 million loan, while the Japanese government has said it is ready to guarantee a Samurai bond offer of $500 million-$1 billion this year. [ID:nSEO66940] [ID:nMAN452558]

“We have to review our borrowing strategy for the second semester, and see how these new financing alternatives will impact the local borrowing programme, including RTBs (retail Treasury bonds), if we will defer,” Roberto Tan, national treasurer, told Reuters.

“We are looking at $500 million to $1 billion,” Tan said regarding the planned offer of Samurai bonds, or yen bonds issued in Japan by non-Japanese borrowers.

However, Finance Secretary Margarito Teves, currently in Tokyo to discuss the Japanese government-backed bonds, has said the issue could reach up to $1.5 billion.

The funds would help the Philippines government bridge a budget deficit it expects to balloon this year to a record 250 billion pesos , or 3.2 percent of GDP.

The government said on June 10 it needed to borrow about 50 billion pesos this year in addition to its earlier stated borrowing programme of 613.9 billion pesos.

Like other governments, the Philippines has seen its revenues slide and spending needs rise during the economic downturn.

Manila has repeatedly said it is keen to take on more concessional loans from multinational lenders, but a long approval process could trip up its spending plans.

That left the bond market braced for increased government borrowing, pushing up bond yields.

The government had not declared the size of the retail bond issue, which it had planned for next month. But it has 15 billion pesos in retail bonds and 22 billion pesos in treasury bonds maturing in July.

“We may decide not to push through with it,” Deputy Treasurer Eduardo Mendiola said. “This may not be a good time because we have seen an uptick in interest rates.”

Yields on actively traded 3-year bonds <PH3YT=RR> have risen 32.5 basis points in the last seven weeks on PDST-R2 <PDSTSY>, which reflects the weighted average of transactions in the local debt market’s afternoon session.

News this week on the Samurai bond issue had weighed on bond yields, which fell further on Thursday on news of a possible delay in the retail bond issue. [ID:nHKG68266]

In another sign of the country’s deepening fiscal woes, the main tax agency missed its revenue target in May by 3 billion pesos, a government source said on Thursday. [ID:nMAN383247]


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