BEIJING, China — The Philippines today becomes the first ASEAN sovereign to issue Panda bonds.
With a tight spread of 35 basis points (bps) above benchmark, the three-year Panda bonds fetched a coupon rate of 5 percent, in what the country’s top finance official consider as a reflection of confidence in the robust growth prospects and creditworthiness of the Philippines.
The Philippine government’s inaugural issue of renminbi (RMB)-denominated bonds, or Panda bonds, was warmly received by the Chinese and other offshore markets with oversubscription hitting about 6.32 times, the all-time largest coverage for any Panda sovereign issuer.
In a press statement released by the Investor Relations Office (IRO) here on March 20, bids reached RMB9.22 billion compared with the Philippine government’s debt offering of RMB1.46 billion. The Philippines was able to diversify its investor base with participation originating from both onshore and offshore investors.
With the Bond Connect scheme, offshore investors comprised 87.7% of allocation, representing the highest offshore mix for any Panda issuer.
Price range was announced yesterday, March 19, at 5 – 5.60 percent. Overwhelming demand was able to push the coupon to its lower bound of 5 percent.
“The Philippine government’s successful inaugural issuance of Panda bonds highlights the investor confidence that the country enjoys on the back of its strong credit profile,” Finance Secretary Carlos Dominguez III said.
“The Duterte administration is committed to sustaining the growth momentum and making the economy a more inclusive one by way of massive investments in infrastructure and human capital development. It intends to pursue this unprecedented level of public spending while maintaining sound economic policies and observing fiscal discipline,” Dominguez said.
“This is also one of the concrete results of President Duterte’s independent foreign policy,” he added.
Relative to the government’s usual global dollar issuance, the renminbi-denominated Panda bond’s 5 percent coupon would have an indicative dollar swap equivalent rate of 2.93 percent, 23 bps below current three-year dollar yield of 3.16 percent.
The Panda bonds were rated “AAA” by China’s Lianhe Credit Rating Co. Ltd.
The bonds issuance on March 20 followed a three-leg, international deal roadshow by the Philippine delegation led by National Treasurer Rosalia de Leon and Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo.
In the roadshow held from March 14-16, the delegation met potential investors in Singapore, Hong Kong, and China to expound on the terms of the bond issuance and to provide updates on the Philippine economy.
The bond issuance came amid the consistently strong performance of the Philippine economy in nearly twenty years, making it one of the fastest growing economies in Asia. The Philippines grew by 6.7 percent in 2017 after expanding by 6.9 percent the previous year.
The Philippines’ outlook remains robust, with the government expecting growth to hit the official target range of 7.0 to 8.0 percent this year until 2022.
Anticipated growth drivers over the medium term are the government’s massive infrastructure spending and rising investments in social services, as well as growing private-sector investments, which have led in part to the resurgence of the manufacturing sector, and robust household consumption.
Under its “Build Build Build” program, the Philippine government intends to spend over USD150 billion in the next five years up to 2022 on big-ticket projects all over the country, such as roads, airports, subways, and other mass transit systems.
It will do so while maintaining the budget deficit at a manageable level equivalent to 3 percent of gross domestic product (GDP). The projects will be financed in part by proceeds from the government’s comprehensive tax reform program.
With the government’s infrastructure and social services program, the Philippines is targeted to reach upper middle income status, with per-capita income of USD5,000, by the end of President Duterte’s term by 2022.
The Philippines’ maiden issue of Panda bonds affirms the country’s improving bilateral relations with China and the increasing relevance of the Renminbi. In 2016, the International Monetary Fund (IMF) included the Renminbi in the Special Drawing Rights’ (SDR) basket of currencies.
The government’s successful issue now opens the door for the private sector to access the onshore Chinese bond market for financing.
Bank of China served as lead underwriter of the bond issuance, and Standard Chartered Bank as joint lead underwriter. Beyond the Panda bond issuance, Bank of China has supported the Philippines in several initiatives, including the development of the Renminbi spot market in the Philippines. (PR/PNA)
