Past President Rudy Meñes briefing the President on behalf of the Oro Chamber at the Philippine Economic Briefing this morning at Mallberry Suites

Morning Brief: 23 March 2011

Gov’t raises $1.5B from bond issue The government raised $1.5 billion from the issuance of 15-year, US Securities and Exchange Commissioned-registered global bonds, the Department of Finance announced Tuesday. Maturing in March 2026, the newly issued bonds were priced at 99.495 percent with a coupon of 5.5 percent and a yield of 5.55 percent. “We are very pleased with the response to the transaction, with strong investor interest enabling the [Philippines] to successfully establish a new 15-year benchmark on its US dollar yield curve,” National Treasurer Roberto B. Tan said in a statement. “The deal was significantly oversubscribed” from 280 prospective investors, [showing] the confidence of the international investor community in the economic and financial prospects of the Philippines,” Tan said. Finance Secretary Cesar V. Purisima said the Philippines moved swiftly to access the US dollar bond market and achieved low-cost, long-dated offshore funding. “This continues [Malacañang’s] pro-active stance in managing its sovereign debt, extending its debt maturity profile during uncertain times for the global economy,” Purisima added. The officials said the book-building process for the offering took only 10 hours, with 22 percent of allocations going to investors based in the Philippines, 18 percent to those from the rest of Asia, and 30 percent each from the United States and Europe. HSBC and Goldman Sachs were the joint global coordinators while UBS, JP Morgan, Citigroup and Deutsche Bank were the joint bookrunners. The amount raised was the upper limit of the government’s target, based on Tan’s statements on Monday. Back then, Tan said the issue might reach $1.5 billion partly due to expected delays in disbursements of official development assistance. He said such delay was due to ongoing discussions about the loans and that this was not due to the calamity in Japan. Tuesday’s issuance was the government’s second foray in the global bond market this year, having raised about P54.77 billion, or $1.25 billion, through the sale of 25-year global peso bonds last January. It was also the third sortie for the Aquino administration, which also raised P44.1 billion, or $1 billion, through the float of 10-year global peso bonds in September 2010.

. U.S. Stocks Retreat Amid Oil's Advance, Concern About European Debt Crisis U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for the first time in four days, as oil rose amid unrest in Libya and concern grew that Europe won’t find an immediate solution to its debt crisis. Walgreen Co. (WAG), the largest U.S. drugstore chain, sank 6.6 percent as profit margin fell short of analyst estimates. Carnival Corp. (CCL), the world’s biggest cruise-line operator, lost 4.5 percent after forecasting profit that missed analyst projections. Sprint Nextel Corp. (S) rose 2.5 percent after Raymond James & Associates raised its rating. Netflix Inc. (NFLX) added 4 percent as Credit Suisse Group AG lifted its recommendation. The S&P 500 retreated 0.4 percent to 1,293.77 at 4 p.m. in New York. The gauge had rallied 3.3 percent over the previous three sessions. The Dow Jones Industrial Average declined 17.90 points, or 0.2 percent, to 12,018.63 today. “We had a number of black swan crises back to back, and that’s always very disconcerting,” Barton Biggs, who helps oversee $1.4 billion as managing partner of Traxis Partners LP, said in an interview on Bloomberg Television’s “Street Smart with Carol Massar and Matt Miller.” “There’s still a couple black swans flapping around out there, but unless you come up with a dire scenario I think we’ll extend the rally.” Peak Biggs said the U.S. stock market will probably rise back to its 2011 peak from February after the S&P 500 lost as much as 6.4 percent following Japan’s biggest earthquake and as Libya’s Muammar Qaddafi attacked rebels seeking to end his 41 years as the country’s ruler. U.S. stocks rallied yesterday as concern eased that Japan will suffer a nuclear meltdown and after AT&T Inc. (T) agreed to buy T-Mobile USA Inc. for $39 billion. The S&P 500 today snapped a three-day winning streak, the longest in about a month, as Irish notes slid and oil rose 1.6 percent to $104 a barrel. The slump in Irish notes came after EU finance chiefs settled yesterday on how to enable a permanent rescue fund to lend 500 billion euros ($712 billion) as of 2013, while remaining divided over how to get the current stopgap fund to its full capacity. “The market is trading on the headlines,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “Things can change from minute to minute. Whenever you get things that are unknown, you start to price in higher risk. Of course, you want to buy at the bottom when the fear is so prevalent in the market. The economic recovery is strong. It’s just that there are too many unknowns right now.” Sustained Economic Growth Global markets are signaling that sustained economic growth will more than make up for Japan’s worst disaster since World War II, rising commodity prices and uprisings throughout the Middle East and northern Africa. Interest-rate derivatives, bond sales by the riskiest borrowers and rebounding benchmark stock indexes all show increasing confidence in the economy. This year markets have contended with the ouster of Egyptian President Hosni Mubarak, battles between forces loyal to Libyan leader Muammar Qaddafi and rebels, protests in Saudi Arabia, Bahrain and Yemen, oil above $100 a barrel, record-high food costs and a magnitude 9.0 earthquake in Japan that killed more than 8,000 people and crippled a nuclear power plant. “These events are not going to derail the global expansion,” said Hank Smith, chief investment officer at Haverford Trust Co., which manages about $6.5 billion in Radnor, Pennsylvania. “I’m not sure the risk is over, but the fear of it escalating and getting much worse is subsiding. The big picture remains slightly in favor of equity investors. That is, the economy is expanding, not contracting.” More Confidence Manufacturing strength from the U.S. to Germany and China is giving economists more confidence that the recovery from the worst financial crisis since the Great Depression will continue. Goldman Sachs Group Inc. forecasts a global expansion of 4.8 percent this year, while JPMorgan calls for 4.4 percent. The average over the past two decades is 3.4 percent. Walgreen slumped 6.6 percent to $39.21. Gross margin, or the percentage of sales left after the cost of goods sold, was little changed at 28.8 percent in the second quarter, Walgreen said. Analysts at Barclays Plc and Citigroup Inc. estimated gross margin would widen at the chain, which operates about 7,700 locations across the U.S. and filled one in five retail prescriptions last quarter. Carnival fell 4.5 percent to $39.16. The world’s biggest cruise-line operator said it will have fiscal second-quarter profit of 20 cents to 24 cents a share. Analysts surveyed by Bloomberg had estimated 33 cents on average. Sprint Rallies Sprint rallied 2.5 percent to $4.47. The third-largest U.S. mobile-phone carrier was raised to “strong buy” from “outperform” at Raymond James. Netflix gained 4 percent to $221.39. The mail-order and online movie-rental service was raised to “outperform” from “neutral” at Credit Suisse. The share-price estimate is $280. BJ’s Wholesale Club Inc. (BJ) rose 5 percent, the most since Feb. 3, to $48.84. Shareholder Leonard Green & Partners said it’s examining an offer for the U.S. membership warehouse chain, reviving its overtures after BJ’s began looking for suitors. [bn:WBTKR=MCP:US] Molycorp Inc. [] surged 18 percent, the most since Dec. 6, to $52.57. The owner of the world’s largest rare-earth deposit outside China rose as mineral prices increased and concern about the impact of Japan’s earthquake abated. Chief Executive Officer Mark Smith said yesterday that rare earth prices were “significantly higher” than anticipated.

Oil Near Two-Week High in New York on Libyan Conflict, Middle East Turmoil Oil traded near a two-week high in New York amid concern that continued conflict in Libya threatens to prolong supply disruptions and that escalating turmoil may curtail Middle East shipments. May futures climbed 1.8 percent yesterday as U.S. Admiral Samuel Locklear said further strikes will be launched against ground forces of Libyan leader Muammar Qaddafi in the “coming hours and days.” Prices have advanced 15 percent this year as turmoil that toppled the leaders of Tunisia and Egypt spread to Yemen, Bahrain and Syria. “Events in the Middle East and North Africa are the main game in the crude oil market and are the thing to watch in terms of the direction of the oil price,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, told Susan Li on Bloomberg Television’s “First Up.” Crude oil for May delivery traded at $104.95 a barrel, down 2 cents, in electronic trading on the New York Mercantile Exchange at 11:24 a.m. Sydney time. Yesterday, it rose $1.88 to $104.97, the highest since March 9. The April contract, which expired yesterday, gained $1.67, or 1.6 percent, to $104. U.S. Defense Secretary Robert Gates said yesterday that the intensity of the military campaign in Libya will ease soon after allied forces imposed a no-fly zone, enabling rebels to push out of their eastern Benghazi stronghold. Brent crude for May settlement traded at $115.87 a barrel, up 17 cents, on the London-based ICE Futures Europe exchange. The contract climbed 0.6 percent to $115.70 yesterday. Japanese Rebound Japan may see a rebound in the second half of this year, a Bloomberg News survey of economists showed. The nation may set up a reconstruction agency to oversee repairs after the March 11 earthquake, while data showed the central bank pumped record liquidity into lenders. The country’s strongest earthquake on record triggered a tsunami that killed thousands and damaged the Fukushima Dai-Ichi nuclear power plant. Tokyo Electric Power Co. began restoring electricity at the facility yesterday, easing concern there will be a nuclear meltdown. “With the reconstruction process around the corner there will be some upward pressure in demand in Japanrelatively to what it otherwise would have been,” Westmore said. “A marginal influence on the crude market will be a rise in oil plants fulfilling some of that lost capacity of nuclear, in terms of electricity generation.” Japan’s refineries are processing more oil than expected, Vienna-based researcher JBC Energy GmbH said. The earthquake shut six refineries totaling about 29 percent of the country’s processing capacity, Bloomberg calculations based on Petroleum Association of Japan data show. Three of the plants remain closed, JBC analysts led by David Wech said yesterday in a note. U.S. crude oil stockpiles rose 970,000 barrels to 350.8 million last week, according to the industry-fundedAmerican Petroleum Institute. An Energy Department report today may show inventories climbed 1.5 million barrels, rising for a third week, according to a Bloomberg News survey of analysts.

Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com

BDO UNIBANK INC.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001

Philippine Markets: 22 March 2011

22 March 2011

USD/PhP: 43.39 (as of 12:00pm) PSEi: 3854.14 + 9.83
USD/JPY: 80.97 PFINC: 865.49 + 7.54
EUR/USD: 1.4220 BDO: 50.00 + 1.40
GBP/USD: 1.6302 BPI: 53.70 unch
PDSTF3M: 1.5212 MBT: 62.00 + 0.15
Prices as of 12:00pm Source: Bloomberg, Reuters



Philippines Sells $1.5 Billion of Bonds to Fund Deficit

By Clarissa Batino and Max Estayo
March 22 (Bloomberg) -- The Philippines sold $1.5 billion
of 15-year dollar debt, completing its target for global sales
to help cover this year’s budget deficit.
The government sold the 5.50 percent bonds due March 2026
at a yield of 5.55 percent, the finance department said in an e-
mail. That was below the 5.625 percent guidance announced
yesterday. Thirty percent of the securities were sold in the
U.S., 30 percent in Europe, 22 percent in the Philippines and 18
percent in the rest of Asia. Bids totaled $6.5 billion, or 6.5
times the amount on offer, Finance Secretary Cesar Purisima said
in a mobile-phone message today.
“There’s a relatively low level of supply and strong
demand for these bonds from local onshore institutions,” said
Sergey Dergachev, who helps oversee about $9.6 billion of
emerging-market debt at Union Investment Privatfonds GMBH in
Frankfurt.
Emerging-market companies and governments have sold $181
billion of bonds so far this quarter, the busiest start to a
year since Bloomberg began compiling such data in 1999. The
Philippines’ issuance brings overseas debt sales to $2.75
billion this year, exceeding the $2.5 billion originally
planned. It will help fund a budget deficit the government
estimates will narrow to 300 billion pesos ($6.9 billion) from
314.4 billion pesos last year.

Bond Yields, Peso

Five-year peso bonds gained the most in two months. The
rate on the 7 percent peso notes due January 2016 dropped 18
basis points to 5.82 percent, according to Tradition Financial
Services. The yield on the new bonds was little changed as of
9:54 a.m. in Manila, according to prices from ING Groep NV.
The dollar bonds were sold at a spread of 223.8 basis points
over U.S. Treasuries, according to a person familiar with the
matter who asked not to be identified because the details have
yet to be made public.
The extra yield investors demand to own Philippine dollar
bonds instead of Treasuries narrowed two basis points, or 0.02
percentage point, to 170 in New York. The spread reached 184 on
March 16, the widest level since Oct. 8, according to JPMorgan
Chase & Co.’s EMBI+ Philippines Sovereign Spread Index.
The peso strengthened 0.4 percent to 43.388 per dollar as
of 10:01 a.m. in Manila, the strongest level since March 10,
according to Tullett Prebon Plc.
“The Philippines moved swiftly to access the U.S. dollar
bond market and achieve low-cost, long-dated offshore funding,”
Purisima said. “This continues the Republic’s pro-active stance
in managing its sovereign debt, extending its debt maturity
profile during uncertain times for the global economy.”

Growth Target

The Philippine economy expanded 7.3 percent last year, the
most in 34 years, and President Benigno Aquino is targeting
growth of 8 percent this year. Moody’s Investors Service raised
its outlook on the nation’s debt rating in January to positive
from stable. Policy makers are studying the impact of the crisis
in Japan, the nation’s biggest trading partner and largest
source of development loans, Aquino said yesterday.
Treasurer Roberto Tan has said the latest issuance may be
the nation’s final overseas debt sale for the year. The
government’s official development loans from overseas may face
delays, Tan said. Risks arising from Japan’s earthquake may
delay an offering of yen bonds from the first half of this year,
Ricky Carandang, a presidential spokesman, said last week.
Goldman Sachs Group Inc. and HSBC Holdings Plc were lead
arrangers for the latest issue. Citigroup Inc., Deutsche Bank
AG, JPMorgan Chase & Co. and UBS AG also helped sell the notes,
the government said.

Jonathan Ravelas
Chief Market Strategist
(632) 858-3145

Rhys Cruz
Junior Researcher
(632) 858-3001