THE GOVERNMENT’S $200-million global bond offering drew an overwhelming response from the international capital market, resulting in an oversubscription of the debt securities by as much as 10 times, the Department of Finance announced yesterday.
The government also completed a dollar bond exchange by issuing almost $3 billion of notes to extend debt maturity.
Despite the strong appetite for the bonds, the government opted to stick to its borrowing plan of selling $200 million worth of securities.
The government has been borrowing steadily to plug an estimated budget deficit of P325 billion this year and settle maturing obligations.
Also, the government decided to trade new long-term securities with previously sold bonds about to reach maturity.
In particular, the government swapped $2.04 billion worth of bonds to mature in 2021 with securities that were supposed to mature between 2011 to 2017.
Moreover, $950 million worth of bonds to mature in 2034 had been exchanged with previously sold ones.
Citi, HSBC and UBS acted as joint dealer managers and joint bookrunners for the transactions.
Aquino infra scheme may be debt-funded
KEY INFRASTRUCTURE projects touted to be the economic centerpiece of the Aquino administration will likely be funded through a multibillion-dollar foreign borrowing scheme to ensure Filipino ownership of big-ticket ventures.
Speaking on condition of anonymity, a Palace official yesterday told the Inquirer that the government would create a corporate entity that would sell bonds to foreign creditors.
“These funds, in turn, will be used to fund the infrastructure projects,” said the official who refused to be identified because discussions regarding the scheme were ongoing.
When initially conceived, the so-called infrastructure fund is envisioned to be a scheme that will allow foreign investors to directly participate in local projects through direct equity infusion.
The Palace official believes that the equity scheme may prove to be less attractive than outright debt partly because of foreign ownership restrictions on key infrastructure projects, many of which may be categorized as vital to national interests.
In addition, debt funding is, in general, cheaper to generate than equity.
The official stressed that no final decision has been made on the funding method—whether debt or equity. But he did point out that the country’s economic managers appeared to favor the debt scheme.
No amount has yet been set for the initial debt issue, but the National Economic and Development Authority has said that the first 10 projects under President Aquino’s Public-Private Partnership program may cost at least P170 billion.
Finance Secretary Cesar Purisima was also reported to have quoted an estimate of $10 billion (or about P440 billion at prevailing rates) as the initial size of the infrastructure fund.
Meanwhile, Trade Secretary Gregory Domingo yesterday said the government would allot P15 billion to help infrastructure projects get off the ground. This amount would be set aside by the Department of Budget and Management from the 2011 budget.
U.S. Stocks Fall After Better-Than-Estimated Economic Data
U.S. stocks fell, trimming the biggest September gain since 1939 for the Standard & Poor’s 500 Index, as investors sold some of the month’s best-performing shares amid speculation that improving economic data will reduce the need for the Federal Reserve to stimulate growth.
Caterpillar Inc., which has rallied 21 percent in September for the top gain in the Dow Jones Industrial Average, fell 1.6 percent to lead the 30-stock gauge lower today along with biggest decliner American Express Co., which fell 2.3 percent. Apple Inc., up 17 percent this month, slumped 1.3 percent. Occidental Petroleum Corp. gained 2.2 percent, leading a measure of energy stocks to the only rise among 10 groups in the S&P 500.
The S&P 500 slipped 0.3 percent to 1,141.20 at 4 p.m. in New York, paring its monthly advance to 8.8 percent and its third-quarter gain to 11 percent. The Dow slid 47.23 points, or 0.4 percent, to 10,788.05.
Treasuries Rise for Third Straight Quarter on View Fed Will Buy More Debt
Treasuries rose for a third consecutive quarter as reports showing a stalled U.S. economic recovery encouraged speculation that the Federal Reserve will step up quantitative easing.
U.S. securities have returned 2.7 percent since the end of June in the longest stretch of quarterly advances since the first three months of 2008, according to Bank of America Merrill Lynch indexes. Bonds were little changed today as reports showed signs of strength in the job market and regional manufacturing.
“Every piece of economic number is being viewed in the prism of QE2 or no QE2,” said Kevin Flanagan, a fixed-income strategist at Morgan Stanley Smith Barney in Purchase, New York.
The yield on the 10-year note gained less than 1 basis point, or 0.01 percentage point, to 2.51 percent at 4:35 p.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 dropped 1/32, or 31 cents per $1,000 face amount, to 101.
Crude Oil Tops $80 in Biggest Monthly Advance Since May 2009
Crude oil rose, capping the biggest monthly gain since May 2009, after U.S. second-quarter gross domestic product and weekly jobless claims beat economists’ estimates in signs that demand may improve.
Oil jumped to a seven-week high on a government report that the world’s largest economy grew at a 1.7 percent annual rate in the second quarter. The price also gained as the decline in jobless claims indicated that companies are cutting back on firings and on an unexpected drop in gasoline stockpiles.
“The market is still viewed as economics-led,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. “People are looking ahead to when the economy is going to recover and demand is going to cause drawdowns in some of the inventories.”
Oil for November delivery gained $2.11, or 2.7 percent, to settle at $79.97 a barrel on the New York Mercantile Exchange. The price ranged from $77.55 to $80.18, the highest price since Aug. 11. Futures climbed 11 percent in September and 5.7 percent in the third quarter.
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
Jonathan Ravelas
Chief Market Strategist
(632) 858-3145
Rhys Cruz
Junior Researcher
(632) 858-3001
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