MANILA, April 28, 2004 (STAR) By Des Ferriols  - Going on a borrowing spree right before the May 10 elections, the Arroyo administration sold $400 million worth of bonds to finance the requirements of the state-owned National Power Corp. (Napocor).

The government has repeatedly said that Napocor was capable of raising its own funds but finance officials disclosed late Monday night that the opportunity to raise $400 million arose and the Arroyo administration decided to take advantage of it.

The amount was increased from an original target sale of $300 million, and was split evenly between the two bond issues.

Finance Undersecretary Eric O. Recto told reporters that the government decided to reopen existing bonds of $200 million each that were scheduled to mature in 2014 and 2011.

The $200 million worth of 2011 bonds were sold at a spread of 375 basis points over US Treasuries, while the 2014 bonds were sold at 405 basis points over US Treasuries.

According to Recto, the government had originally intended to issue only $300 million, but the final amount depended on the appetite of the market for Philippine bonds.

Recto said the government had no intention of borrowing before May but pointed out there was an opportunity to raise funds that would be cheaper rather than wait for the completion of the election.

"We’re going into the international bond market because we wanted to take advantage of this opportunity," Recto said. "There was a significant improvement in pricing and it has become cheaper for us to borrow over the past few weeks."

Recto said the market was anticipating an increase in interest rates over the short term as the US Federal Open Market Committee was expected to adjust US interest rates.

"Right now, rates are fairly stable so we decided to take advantage of it before interest rates go up again," Recto said.

Recto said the government re-opened its $1.3-billion 8.375 percent Global Bonds due 2011 and $1.5 billion 8.25 percent Global bonds due 2014, adding $200 million each to the outstanding amounts of the 2011 and 2014 bonds.

Recto said the government decided to take $400 million after it received about $600 million worth of orders within a 24-hour marketing period

Recto said the proceeds of the borrowing would fund part of the Napocor’s requirements. The state-owned power firm would not have been able to take advantage of the terms on its own.

Recto said Napocor needs a total of $1.5 billion for 2004 and the latest bond issuance of the National Government would be re-lent to the power company on top of the $100-million zero coupon bonds that it issued earlier this year.

"Together with zero coupons worth $100 million from ING Baring, we’ve managed to address a third of Napocor’s requirement at a price that we believe is acceptable," Recto said.

The Arroyo administration has been on a borrowing binge in the last few weeks, even entering into negotiations for a possible commercial currency swap agreement with ING Baring for a total of $100 million.

With negotiations still ongoing for a similar swap agreement with the Asian Development Bank (ADB), the Department of Finance said it has received several offers for swaps and a $100-million transaction was now on the table.

Finance Secretary Juanita Amatong told reporters that the swap with ING Baring was only one of several that the DOF was studying, adding that the government need not pursue the ADB deal if the terms were unacceptable.

Reported by: Sol Jose Vanzi

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