By Chino Leyco The Duterte administration completed its maiden issue of renminbi-denominated bonds today, making the Philippines the first Southeast Asian sovereign to issue “Panda” bonds. Newly reappointed National Treasurer Rosalia V. de Leon
(C) Youtube National Treasurer Rosalia V. de Leon said the inaugural three-year Panda bonds were sold at a coupon rate five percent, or 35 basis points over the two-year China benchmark rate of 4.65 percent. De Leon said total orders for the renminbi notes reached 9.22 billion, or more than six-times Manila’s issue size of 1.46 billion yuan and the all-time largest coverage for any Panda sovereign issuer. “The Philippine government’s successful inaugural issuance of Panda bonds highlights the investor confidence that the country enjoys on the back of its strong credit profile,” Finance Secretary Carlos G. Dominguez III said in a statement. The finance chief also said the Duterte administration is committed to sustaining the growth momentum and making the economy a more inclusive one by way of massive investments in infrastructure and human capital development. “It intends to pursue this unprecedented level of public spending while maintaining sound economic policies and observing fiscal discipline," Dominguez said. “This is also one of the concrete results of President Duterte's independent foreign policy.” Relative to the government’s usual global dollar issuance, the renminbi-denominated Panda bond’s five percent coupon would have an indicative dollar swap equivalent rate of 2.93 percent, 23 basis points below current three-year dollar yield of 3.16 percent. The Panda bonds were rated “AAA” by China's Lianhe Credit Rating Co. Ltd. The bonds issuance today followed a three-leg, international deal roadshow by the Philippine delegation led by de Leon and Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo. In the roadshow, the delegation met potential investors in Singapore, Hong Kong, and China to expound on the terms of the bond issuance and to provide updates on the Philippine economy. The bond issuance came amid the consistently strong performance of the Philippine economy in nearly 20-years, making it one of the fastest growing economies in Asia. The country’s economy grew by 6.7 percent in 2017 after expanding by 6.9 percent the previous year. The Philippines’ outlook remains robust, with the government expecting growth to hit the official target range of 7.0 percent to 8.0 percent this year until 2022. Anticipated growth drivers over the medium term are the government’s infrastructure spending and rising investments in social services, as well as growing private-sector investments. Under its “Build Build Build” program, the Philippine government intends to spend over $150 billion in the next five years up to 2022 on big-ticket projects all over the country, such as roads, airports, subways, and other mass transit systems. It will do so while maintaining the budget deficit at a manageable level equivalent to three percent of gross domestic product (GDP). The projects will be financed in part by proceeds from the government’s comprehensive tax reform program. With the government’s infrastructure and social services program, the Philippines is targeted to reach upper middle income status, with per-capita income of $5,000, by the end of President Duterte’s term by 2022. The Philippines' maiden issue of Panda bonds also affirmed the country's improving bilateral relations with China and the increasing relevance of the Renminbi. In 2016, the International Monetary Fund (IMF) included the Renminbi in the Special Drawing Rights' (SDR) basket of currencies. The government’s successful issue now opens the door for the private sector to access the onshore Chinese bond market for financing. Bank of China served as lead underwriter of the bond issuance, and Standard Chartered Bank as joint lead underwriter. Beyond the Panda bond issuance, Bank of China has supported the Philippines in several initiatives, including the development of the Renminbi spot market in the Philippines.