China credit rater gives top marks to PHL’s panda bonds

A CHINESE debt watcher has given its highest credit rating to the Philippines’ planned yuan-denominated securities, citing the country’s “strong and consistent economic growth,” the Finance department said in a press release on Monday.

China Lianhe Credit Rating Company Ltd. gave the Philippines’ planned “panda” bond sale an “AAA” rating with a stable outlook, saying the debt papers “have the lowest expectation of default risk.”

National Treasurer Rosalia V. De Leon told reporters after the Treasury bills auction on Monday: “We got an AAA rating from Lianhe; so following that, we are watching the market closely and if there will be an opportunity for us to be able to go ahead and trigger the issue then we will do so.”

“That’s expected kasi… prior to the Philippines, there are also other sovereigns who went to the panda market like Poland and Hungary. So we see that… we are aligned naman [with these east European issuers] so we expected na we will get that AAA rating also,” Ms. De Leon explained.

“…[T]hings are getting favorable naman for us so we are just discussing with the underwriters what will be the price guidance and if it’s competitive with our own pricing and the dollar space.”

Asked whether the government can launch the sale this week, Ms. De Leon replied only: “We’ll see.”

Finance Secretary Carlos G. Dominguez III had said in November last year that the government planned to proceed with the panda bond sale this quarter from the initial October-November timetable.

The People’s Bank of China and National Association of Financial Market Institutional Investors approved on Feb. 9 the government’s planned offer of $200 million worth of yuan-denominated securities equivalent to some 1.46 billion renminbi. The Bank of China is the lead underwriter for the sale after signing an agreement with the government in November.

According to the Finance department, Lianhe cited the Philippines’ “strong and consistent economic growth, with employment continuously improving; government debt ratios that are continuously improving and well covered by fiscal revenue; large remittance inflows that contribute to the country’s ability to earn foreign exchange; low level of external debt and the very strong capacity to repay these obligations; and stable source of repayment from growing government revenues.”

“The Republic of the Philippines has a well-established institutional framework, but its governance capacity is moderate albeit improving remarkably in recent years,” the Finance department quoted Lianhe as saying in the latter’s report.

Lianhe said that it expects the Philippines to record a 6.8% gross domestic product growth in 2018, a bit faster than the 6.7% actually clocked in 2017 though still falling short of the government’s 7-8% target.

It also said that unemployment rate is expected to remain stable, while inflation — which averaged 3.65% in 2018’s first two months — will remain within the Bangko Sentral ng Pilipinas’ 2-4% target band for the full year.

The credit rater also took into account the stronger economic ties between Manila and Beijing as well as tax reform progress with the implementation of Republic Act No. 10963, or the first of up to five such packages planned by the current government to “help the Philippines achieve more rapid and equitable growth in the following years.”

The entire tax reform program is estimated to yield some P2 trillion in additional revenues that will help fund the government’s infrastructure development that will require more than P8 trillion up to 2022, when President Rodrigo R. Duterte ends his six-year term.

The government has a P888.23-billion borrowing plan this year, 22.05% more than last year, to fund its budget deficit that is capped at three percent of gross domestic product. Of this amount, P176.27 billion will be from external financing while P711.96 billion will be sourced locally.

The planned panda bond sale will be the government’s second offshore bond offer this year after it sold $2 billion worth of 10-year dollar-denominated global bonds, raising $750 million in fresh funds while swapping $1.25 billion worth of old papers as part of liability management.

Mr. Dominguez had said early in January that the sale of yen-denominated — or “samurai” — debt papers is “being considered sometime towards the end of this year.” — Elijah Joseph C. Tubayan