Philippines Capital Markets Deal: The Republic of the Philippines’ US$2bn triple-tranche bond

IFR Asia Awards 2022
2 min read
Morgan Davis

Ensuring continuity

The Philippines saw a big change in 2022, with Ferdinand “Bongbong” Marcos Jr, the son of the former dictator, taking over as president from Rodrigo Duterte. The country’s ability to sell its new story, and weather the difficult market, made its US$2bn bond sale in October the top domestic capital markets deal of the year.

The Philippines has long been a savvy player in the offshore bond market, but that did not make its October trade an easy one. The deal was its third of the year, but its first since Marcos took power, and followed a spike in US dollar rates over the summer.

The 10-year US Treasury yield had fallen from 3.83% at the end of September to 3.62% at the close on Tuesday, October 4, ahead of the Philippines’ launch the next morning. It rebounded to 3.76% at the Wednesday close, creating a tricky backdrop for a new issue.

To market the trade and assure investors the sovereign would maintain its record of good governance, Marcos and his team hit the road, hosting economic briefings in Singapore and New York a few weeks before.

The 25-year notes were sold with a sustainability label, marking the sovereign’s third ESG G3 currency deal off its sustainable finance framework established in November 2021. The issuer built the deal around the 10-year notes as the “core” tranche and decided to let the longest-dated notes carry the sustainability label to attract high quality investors, particularly in Europe, amid rate volatility.

The government sold a US$500m 5.17% 2027 at 120bp over Treasuries, a US$750m 5.609% 2033 at 185bp and a US$750m 5.95% 2047 at 232.1bp. Initial price guidance had started at 155bp, 220bp and 6.55% areas, respectively.

Bankers on the deal estimated that the sovereign paid about 10bp–20bp of new issue premium for the trade, although the comparable notes moved during the day. Based on pre-issue comparable levels, the sovereign paid closer to 30bp.

But the notes traded 5bp–10bp tighter in the secondary market the morning after pricing, showing pricing was spot on.

The SEC-registered trade, rated Baa2/BBB+/BBB, drew strong attention from the US, which took nearly 40% of each tranche. Fund and asset managers took the majority of each bond.

The order book reached US$9.6bn across the three tranches at reoffer, from US$12.3bn when final guidance was set. That allowed the country to raise more than the US$1.5bn it had initially planned.

Bank of America, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, SMBC Nikko, Standard Chartered and UBS were joint bookrunners. Standard Chartered and UBS were also sustainability structuring advisers.

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Corrects bookrunners