DOF ‘sanguine’ on issuance of samurai bonds later this year 

The Bureau of the Treasury (BTr) reported on Wednesday that the Philippine government’s planned issuance of samurai bonds later this year was met with encouraging feedback from Japanese investors during its non-deal road show in June.

National Treasurer Rosalia V. de Leon expressed optimism that the “healthy participation” of the Japanese market will be seen during the Philippines’s planned issuance of samurai bonds later this year, taking cue from the feedback it received during the road show for the bonds undertaken by government officials last month.

“[We] had very encouraging feedback from the economic briefing and non-deal road show,” the national treasurer told the BusinessMirror in a text message.

Earlier in the month, Deputy Treasurer Erwin D. Sta. Ana told financial reporters that the BTr is looking to file its application for regulatory approval for the country’s planned samurai bond issuance to the Kanto Local Finance Bureau in Japan by end-July.

De Leon explained that the government is looking to float samurai bonds under mixed tenors, looking at the three-, five-, seven- and 10-year tenor buckets, with the final mix depending on market appetite and pricing levels.

“We will just be submitting our application by July 23, and then there’s a holding period of maybe around 15 days that we can announce whether we will issue or not…. We are still doing some due diligence…,” she added.

In June Finance Secretary Carlos G. Dominguez III confirmed that the Philippines plans to issue around $1-billion samurai bonds this year. The country’s top finance official issued the announcement before Japanese businessmen during the  opening remarks at the Philippine Economic Briefing (PEB) held at the Imperial Hotel in Tokyo, Japan.

During the non-deal road show, five of Japan’s leading financial institutions also gave their full support to the Philippines’s first stand-alone yen-denominated samurai bonds issue set in September or October this year.

In separate meetings with Dominguez in Tokyo, top officials of Japan’s five largest banks, namely, the Mitsubishi UFJ Financial Group,  Nomura Holdings Inc.,  Mizuho Bank Ltd.,  Sumitomo Mitsui Banking Corp., and Daiwa Securities Group Inc.,  said they expect strong demand for the Philippines’s samurai bond float.

The finance chief further pointed out that investors have demonstrated high level of confidence in the Philippine economy under the Duterte administration with the tight spreads of the country’s dollar- and renminbi-denominated bonds issued earlier this year, which the government expects to be replicated with its upcoming sale of yen-denominated debt securities in the Japanese market in the latter part of 2018.

Tight spreads offer low interest rates, which indicate that the issuer has less chances of defaulting on its bond sale, while higher spreads mean that investors view the bond as having bigger chances of its issuer defaulting, and thus, high interest rates are offered to attract buyers of such riskier investments.

Dominguez said another factor that has contributed to the tight spreads of bonds issued by the Philippines in the offshore market was the fact that the government is now selling securities to raise funds for its infrastructure investments, rather than to cover a ballooning budget deficit.

The government’s “Build, Build, Build” program aims to implement infrastructure modernization in the country, consisting of 75 high-impact projects, with the government expected to spend around P8 trillion to P9 trillion for the program until 2022.

After President Duterte signed the Tax Reform for Acceleration and Inclusion  Act into law in December 2017, the government’s issue of $2 billion worth of 10-year dollar denominated bonds the following month recorded a spread of just 37.8 basis points over the United States Treasuries, while its maiden Panda bond float of 1.46 billion renminbi in March had an even tighter spread of only 35 basis points over the benchmark.

The Philippines last sold Samurai bonds in 2010. Worth $2.5-billion, this allowed the government to complete its commercial funding exercise that year.

The IOUs had partial backing from the Japan Bank for International Cooperation, which helped explain the excess in demand from Japanese investors who submitted far more subscriptions than what was available. The Samurai exercise was done by private placement in which insurance companies, cooperatives and others partook of the offer.



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