26 Aug 2009
Aug. 26 (Bloomberg) -- The Philippine government may revive plans to sell debt to individual investors to help fund a record budget deficit, after a slump in the bond market forced a delay in the issuance last month."We're just in the discussion stage with banks," Treasurer Roberto Tan said in a phone interview yesterday. "I haven't made any decision."
A group of local banks proposed offering at least 30 billion pesos ($620 million) of the securities, available in denominations of 5,000 pesos, as soon as next month, said two bankers familiar with the matter, who declined to be identified. The last sale of so-called retail treasury bonds, or RTBs, helped raise 70 billion pesos for the government in July 2008.
Yields on benchmark five-year debt jumped to a four-month high in June on expectations the government would sell bonds to workers, housewives and pensioners to help fund an estimated 250 billion-peso budget shortfall this year. Higher local borrowing costs prompted Treasurer Roberto Tan to instead issue $750 million of dollar-denominated notes last month and defer the RTB sale indefinitely.
"The knee-jerk reaction will be higher interest rates," said Rafael Algarra, treasurer at Security Banking Corp. in Manila. "However, this should taper off and eventually rates will come back as demand is good for this paper."
Yields Rise
The yield on the 7 percent note due January 2016 rose 2 basis points to 7.155 percent as of 9:49 a.m. in Manila, according to ICAP Plc. The 12.75 percent bond due July 2014 yielded 6.28 percent yesterday, according to the Philippine Dealing & Exchange Corp. The rate climbed to 6.89 percent on June 15, the most since Feb. 9.
Malaysia sold 5 billion ringgit ($1.4 billion) of three- year Islamic bonds to individuals in April, offering a 5 percent annual returns to local investors compared with 3.08 percent it sold to institutional investors that month. Indonesia sold 8.53 trillion rupiah ($850 million) of similar debt on Aug. 10. Islamic securities comply with Shariah law's prohibition on interest payments.
The Philippine government will decide as early as this week as to which of the proposed three-, five- and seven-year notes would appeal to investors, the two bankers said. The Bureau of the Treasury may auction the notes by mid-September, they said.
The Southeast Asian nation expects its deficit to reach a record as the government boosts spending to revive an economy that expanded in the first quarter at the slowest pace in a decade. The government may say Aug. 27 that gross domestic product grew near the weakest pace since a recession ended in 1998, according to economists' estimates.
Three times this year, investors demanded higher yields to buy five- and 10-year bonds than the government was willing to pay, causing cancellations of the auctions, according to data compiled by Bloomberg News.
First Metro Investment Corp., BPI Capital Corp. and Development Bank of the Philippines helped sell retail bonds last year.
