The Republic of the Philippines (RoP) is back on its usual role of kick-starting the annual G3 bond issuance out of Asia when it priced on January 6 a US$2 billion offering and at record low rate. The new issue was launched concurrently with the one-day accelerated switch tender offer for 15 series of US dollar bonds maturing between 2016 and 2034.

The 25-year new issue was priced at par with a similar coupon and re-offer yield of 3.95%. This was at the tight end of the final guidance of 4% area (+/- 5bp) and the lowest ever coupon achieved by the sovereign.

This was an impressive outcome at it came 25bp inside the RoP's last foray in the US dollar bond market in January 2014 when it priced a US$1.5 billion 10-year issue at 4.20%. The last time the RoP issued a 25-year bond was in 2012, which had a coupon of 5%.

The new bonds performed in the secondary market in line with the rally in the treasury market and tightened by 6bp to 7bp in the afternoon of January 7 with the cash price quoted at about 102.

Of the new US$2 billion bonds, US$1.5 billion were used to switch and retire the old bonds, while the remaining US$500 million will be used for general purposes, including budgetary support.

The transaction garnered a combined switch market value and new issue cash order book of US$13.5 billion. The bonds were marketed with an initial price guidance of 4.20% area, which was tightened to 4% area (+/- 5bp) at the Asia close.

"The level of participation across tranches was a demonstration of the investors' appetite to retain exposure to RoP credit and that investors are now familiar with the one-day accelerated switch tender offer," says a banker familiar with deal. "It was also interesting that the RoP tapped the relatively choppy market, yet it was able to attract a huge level of interest both in the new issue and in the switch tender offer. The results are an absolute testament to the strength of the RoP credit story."

"It took courage and conviction to pursue a strategic transaction in the midst of global market volatility," finance secretary Cesar Purisima says in a statement. "Strong economic fundamentals and track record of well-placed deals have allowed the RoP to be the first issuer in the global dollar market and to execute a US$2 billion, 25-year bond at an all-time low coupon of 3.95%."

In launching another tender offer, the RoP was able to extend its debt maturity profile in an efficient manner and it achieved that significantly by issuing bonds which are three years longer than any of its existing paper in the market, the banker points out.

Bonds with total notional value of US$4.4 billion were submitted for the switch tender offer and the RoP accepted a market value of US$1.5 billion from the submissions

"We continue to pursue liability management transactions that provide opportunities to reduce high coupon debt, while achieving interest expense savings, which the government can instead use for more inclusive initiatives," Purisima adds.

In terms of geographic allocation, 47% of the bonds were sold in the US, 41% in Asia and 12% in Europe. By type of investors, fund managers accounted for 61%, banks 32%, insurance companies and pension funds 4%, central banks 2% and private banks 1%.

"We've attracted new name investment grade-only investors in the transaction," says national treasurer Rosalia de Leon. "This robust response from the international markets reflects that our manifest confidence in the strength of the Philippine economy and liability management strategy is very well-placed."

Deutsche Bank and HSBC acted as the joint global coordinators for the bond deal, as well as joint bookrunners along with Citi, Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley, Standard Chartered and UBS. Deutsche Bank and HSBC were also the dealer-managers for the tender offer.

With the impressive RoP deal, other Asian sovereigns may be encouraged by that level of response - amid a relatively choppy market session at that - and look to access the market. "It's certainly a nice foundation for the new bond supply in the market," the banker adds.