, March 12, 2004
 (STAR) By Des Ferriols - The Philippines sold $500-million worth of 11-year global bonds yesterday, ahead of an expected rise in US interest rates that is expected to siphon cash back into US Treasuries.

The Department of Finance (DOF) said the global bonds, which will mature in 2015, were priced to offer investors a yield of nine percent and carry a coupon rate of 8.875 percent.

The offer was handled by joint lead underwriters Union Bank of Switzerland (UBS), HSBC and Credit Suisse First Boston. The bonds had been rated "BB" by Fitch Ratings in line with the country’s long-term foreign currency rating.

Finance Undersecretary Eric O. Recto said the transaction would "substantially cover" the Arroyo administration’s budgetary requirements for 2004 before the May elections.

"It also helped lengthen our debt maturity profile," Recto said.

According to Recto, the response to the offer was a "demonstration of the continuing appeal of ROP credit with investors" despite the current market volatility.

The price on the bonds was estimated at 600 basis points more than 11-year US Treasuries, making it rather expensive compared to the government’s previous borrowings.

Market sources said the pricing might have been affected "to an extent" by the confusion and concern spawned by earlier comments of actor Fernando Poe Jr. that he intended to negotiate for debt restructuring if he is elected president.

Reactions to Poe’s statement were sweeping and immediate, with spreads on the republic’s medium-term bonds widening as overseas markets opened yesterday.

According to the Investor Relations Office (IRO) of the Bangko Sentral ng Pilipinas (BSP), foreign investors and credit rating agencies are taking Poe’s comment seriously since he is a strong contender in the May presidential elections.

"If his platform includes debt restructuring, it becomes a serious concern for people who are holding Philippine bonds," said IRO managing director Cora Guidote.

According to Guidote, bond holders and credit rating agencies alike have been calling to inquire about Poe’s statements.

At a forum last Tuesday, Poe said the government must honor its commitments to creditors but it also "must not only endeavor to stretch debt maturities but also try to bring debt levels down."

Guidote said the market is being sensitive at the moment especially since the republic intends to go to the foreign market for its $500-million long-term bond offer.

"If the investors have to face the possibility that our debt will be restructured in the near term, it will affect not just the price but the intention of the market to invest at all," Guidote explained.

Poe had already backpedaled on his statements but Guidote said that the market was spooked by the mere fact that it was brought up at all. "At the end of the day, it is still just a candidate’s position but there are dynamics in the market that one has to consider when making statements that could rock an already sensitive market," she said.

Regardless of who wins the election, however, Guidote assured that the BSP’s position would remain the same: honor all commitments and obligations.

Reported by: Sol Jose Vanzi

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