RP may issue euro bonds next year to pay off debt

The government may float euro-denominated bonds next year to settle maturing debt, Finance department officials said on Friday. reports quoted unnamed sources as saying that the fresh borrowing would be used to pay around 650 million worth of euro debt next year. The plan was confirmed by Rosalia V. de Leon, officer-in-charge of the Finance department's international finance group, in a text message. "It is an option," she said when asked to confirm the reports. "We still do not have the details but it is one of the options being considered," she later said in a telephone interview. National Treasurer Roberto B. Tan, for his part, said: "We are open to all options that are advantageous to the republic." Proceeding with the offer will add to the list of borrowings planned for next year that include Samurai, global and local retail Treasury bonds. de Leon said the global bond and Samurai issue would proceed even if the government taps the European bond market. "The global bonds and the Samurai bonds are already in the pipeline. The sale of these securities will push through next year," she said. The government is resorting to borrowings to cover a budget shortfall that is expected to hit P300 billion this year and P233.4 billion next year. It has sold dollar-denominated securities thrice this year to support its spending program. Last January, the Philippines floated $1.5 billion worth of 10-year securities at a yield of 8.5 percent to the commercial market, the first offering by an Asian borrower for the year. A decision to widen this year's programmed deficit to P250 billion from P199.2 billion prompted the government to return to the overseas bond market in July, when it issued $750 million worth of 10-year debt paper with a yield of 6.625 percent. A global bond issue in October, aimed at prefunding expenditures for 2010, involved the sale of $1 billion worth of 25-year dollar-denominated debt paper with a yield of 6.425 percent. The government also raised P114 billion from the sale of retail Treasury bonds in September. Another funding source being eyed by the government is the sale of up to $1 billion worth of Samurai bonds. The issue, originally scheduled for this year, has been moved to next year since the government wanted cheaper guarantee terms from the Japan Bank for International Cooperation. Bond-dependent As this developed, global debt watcher Standard & Poor's (S&P) said Asian countries would continue to depend on the commercial debt market to support their economies, even as they are considering exit plans from stimulus programs. "As sovereigns in Asia consider exit strategies from economic stimulus programs, Standard & Poor's Ratings Services anticipates that they will seek to strike a balance to prevent a derailing of the still nascent recovery," it said in a 12-page report dated December 16. "We believe that sovereigns in the region are not yet ready to retreat from capital markets either for their own funding purposes or for general economic support programs. For sovereigns in Asia during 2010, this could mean remaining active issuers in markets that they may otherwise like to tame," S&P said. It added that sovereign requirements for 2010 would likely bring commercial bond issues in the region to $2.2 trillion, 5 percent higher than the P2.095-trillion forecast for this year. Asked to comment on the report, the Finance department's de Leon said the government would continue to tap the commercial market, while remaining conscious about the need to trim its deficit and debt. — Alexis Douglas B. Romero, BusinessWorld