The Republic of the Philippines (RoP) tapped the US dollar bond market for the first time in 2024 when it priced on May 7 a dual-tranche offering totalling US$2 billion, including a sustainability tranche.
The SEC-registered transaction is equally split at US$1 billion each with the 10-year bond priced at 99.900% with a spread of 80bp over the US treasuries. This was in line with the final price guidance and 40bp tighter than the initial price range of 120bp area. The sustainability tranche was for 25 years and was priced at par with a coupon of 5.60%, or 45bp inside of the initial marketing range of 6.05% area.
The latest sustainability bond represents the sovereign’s fifth G3 ESG-related bond offering. This transaction follows the RoP’s debut sukuk offering in December 2023 amounting to US$1 billion; US$3 billion triple-tranche bond issuance in January 2023; US$2 billion triple-tranche bond deal in October 2022; 70.1 billion yen (US$450.90 million) four-tranche Samurai bond in April 2022; and US$2.25 billion triple-tranche bond transaction in March 2022.
In executing the latest transaction, the RoP took advantage of the improving market sentiment following a softer-than-expected US labour market, which alleviated concerns over the US Fed rate path. The success of the offering demonstrated the sovereign’s ability to navigate an uncertain policy rate environment and respond efficiently to capture a conducive issuance window.
The transaction generated robust demand with a combined order book of US$6.4 billion. The 10-year bond attracted a total demand of over US$3.1 billion from 139 accounts with 42% of the paper distributed in EMEA, 34% in Asia and 24% in the United States. By type of investors, fund managers accounted for 65% of the paper; banks and financial institutions 26%; insurance companies and pension funds 4%; central banks, sovereign wealth funds and public sector 3%; and private banks and corporates 2%.
The sustainability tranche garnered an order book of over US$3.3 billion from 163 accounts, with 41% of the bond sold in the US, 32% in EMEA and 27% in Asia. Fund managers were also the biggest buyers of the paper as they took 75%; followed by banks and financial institutions 13%; insurance companies and pension funds 7%; central banks, sovereign wealth funds and public sector 3%; and private banks and corporates 2%.
'Good case for rating upgrade'
“We secured funding from the market at very cheap rates, which allowed us to save on borrowing costs,” says finance secretary Ralph Recto in a statement. “The 10-year spread has been the tightest among all our similar issuances since 2022, while the 25-year sustainability tranche achieved the second-best rate in the government’s history. The tight pricing, especially compared to higher-rated peers, serves as an indication of the country’s exceptional performance beyond its current credit rating and makes a good case for a rating upgrade.”
National treasurer Sharon Almanza notes the 10-year and 25-year tranches achieved negative new issue concession of 5bp and 7bp, respectively, enabling the government to trim the annual interest bill. “The strong reception and record tight pricing levels attained on this transaction reaffirms the Philippines’ position as a true watermark for quality emerging market credit stories, and the success of the offering in the face of various market uncertainties over the past few months shows the continued confidence of the broader investor community in the progress of our economic development,” she says.
Proceeds from the 10-year bonds will be used for general budget financing, while those from the 25-year bonds are also earmarked for general budget financing as well as for refinancing programmes and expenditures in line with RoP’s sustainable finance framework.
HSBC, Standard Chartered Bank and UBS were the joint sustainability structuring banks for the transaction as well as joint bookrunners along with BofA Securities, Citi, J.P. Morgan and Morgan Stanley.
