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New Philippine government's first offshore bond offering attracts strong demand
Sovereign prints another sustainability tranche as it navigates volatile market environment
Chito Santiago 6 Oct 2022

The Republic of the Philippines (RoP) successfully navigated volatile market environment as it priced on October 5 a three-tranche bond transaction totalling US$2 billion. This is the third time the sovereign accessed the international debt capital market this year and also the third time that it printed a sustainability tranche as part of the transaction.

The latest offering comprised of a five-year bond amounting to US$500 million, which was priced at par with a coupon and re-offer yield of 5.170%. This was equivalent to a spread of 120bp over the US treasuries, which was line with the final price guidance and 35bp tighter than the initial guidance of 155bp area.

The second tranche was a 10.5-year bond amounting to US$750 million, which was also priced at par with a coupon and re-offer yield of 5.609%. This represented a spread of 185bp over the US treasuries, which was likewise in line with the final price guidance and 35bp back of the initial price range of 220bp area.

The third and final tranche was a 25-year sustainability bond amounting to US$750 million, which was priced at 98.088% with a coupon of 5.95% to offer a yield of 6.10%. This was 45bp tighter than the initial price guidance of 6.55% area.

Finance Secretary Benjamin Diokno says the strong demand for the first international bond offering under the administration of President Ferdinand Marcos Jr demonstrates investor confidence in the new government. “The eight-point agenda of the new administration will improve real GDP growth, improve government finances, protect purchasing power, mitigate socio-economic scarring and create more quality jobs,” he adds.

The transaction follows the RoP’s 70.1 billion yen (US$484.60 million) four-tranche Samurai bond in April – the first-ever Asean sustainability bond transaction issued by the sovereign – and the US$2.25 billion three-tranche bond offering in March, which included its first ever sustainability bond issuance amounting to US$1 billion.

The latest deal garnered a total demand of US$9.6 billion with the five-year tranche attracting orders worth US$2.5 billion from over 180 accounts. In terms of geographical distribution, 37% of the bonds were sold in the United States, 35% in Asia, including 5% in the Philippines, and 28% in EMEA. By type of investors, fund and asset managers accounted for 75% of the paper, bank treasury 15%, insurance companies and pension funds 6%, and private banks and other investors 4%.

The 10.5-year bond generated an order book of US$3.9 billion from over 200 accounts with 40% of the bond allocated in the US, 33% in EMEA and 27% in Asia, including 4% in the Philippines. Fund and asset managers also drove this tranche as they bought 67% of the bonds, with bank treasury taking 18%, insurance and pension funds 12%, and private banks and other investors 3%.

The 25-year sustainability bond garnered demand amounting to US$3.2 billion from over 180 accounts, and was distributed 40% in the US, 31% in Asia, including 3% in the Philippines, and 29% in EMEA. Fund and asset managers were again the dominant investors for this tranche as they accounted for 78% of the bonds, followed by insurance companies and pension funds with 17%, bank treasury 3%, and private banks and other investors 2%.

The sovereign intends to use the proceeds from the sale of the five-year and 10.5-year bonds for general purposes, including budgetary support, while the proceeds from the 25-year sustainability bond will be utilized to finance or refinance assets under the RoP’s sustainable finance framework.

Standard Chartered and UBS were the joint sustainability structuring banks for the transaction, as well as joint bookrunners and lead managers, along with BofA Securities, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley and SMBC Nikko Securities.

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