The Philippines will hold its first peso-debt exchange since 2011 by the end of the year and may continue buying back global bonds in 2015 before interest rates rise, Treasurer Rosalia V. de Leon said.
The government will probably offer to swap at least P50 billion ($1.16 billion) of notes due in 10 years or longer for its existing shorter-dated debt, de Leon said in an interview at her office in Manila on Wednesday. It also plans to use part of a $750-million global sale scheduled in 2015 to buy back overseas debt, she said.
“This is something we will do within the second half,” de Leon said, referring to the exchange. “We don’t need money, but there may be new funds as part of the swap. The main goal is to create new liquid benchmarks and lengthen our maturity.”
President Aquino’s strategy of narrowing the budget deficit, extending debt maturity and cutting foreign-currency risks has been rewarded by Standard & Poor’s with a rating that’s higher than Indonesia and Russia and on a par with Spain. His administration is taking advantage of peso interest rates near a six-month low before the central bank raises borrowing costs this year and US interest rates increase in 2015.
Bangko Sentral ng Pilipinas raised the rate it pays on special deposit accounts to 2.25 percent on June 19, from 2 percent, after increasing banks’ reserve-requirement ratios at its March and May meetings to cap money supply. The monetary authority has kept its benchmark policy rate at a record-low of 3.5 percent since October 2012. Eleven of 12 analysts surveyed by Bloomberg predict it will boost its overnight borrowing rate by at least 25 basis points by the end of the year. One forecasts no change.
“What’s crucial would be the policy-rate meeting on July 31,” de Leon said. “We have to see where the market really expects the rates to settle.”
The Philippines last conducted a peso-denominated bond exchange in July 2011, when it offered debt due in 10.5 and 20 years. In January it agreed to pay $1.08 billion to buy back foreign-currency notes as part of its $1.5-billion global bonds.
The government’s interest payments narrowed to 18.8 percent of revenue last year from 24.4 percent in 2010 and the target is to cut the ratio to 17.5 percent by the end of the year, the treasurer said. There are no plans to sell retail bonds this year even as P40.4 billion of such debt matures in September, she said.
The administration isn’t inclined to borrow this year to meet its funding needs in 2015, according to de Leon. To diversify risks and its sources of funding, the Philippines may offer its first sukuk and Dim Sum bonds before Mr. Aquino’s term ends in 2016, selling “token amounts,” she said.
The Philippines is unlikely to return to the euro bond market soon, even though banks have been “sounding off” proposals, the treasurer said. The nation last sold euro-denominated debt in January 2006.
The government is also studying a possible offer of catastrophe bonds to help manage the nation’s risk during natural disasters, she said. Rebuilding areas damaged by Supertyphoon Yolanda will cost P361 billion, the government said in December, a month after the storm killed more than 6,000 people.
De Leon said borrowings will drop to P700.8 billion in 2015 from this year’s program of P728.8 billion.
The budget deficit narrowed to P164.1 billion last year from P242.8 billion in 2012, according to data compiled by Bloomberg. The government had a surplus of P8.5 billion as of May.