The Philippine government launched its first global bond offering this year to augment its record 2023 budget of P5.268 trillion.
A term sheet showed that the benchmark-sized US dollar bond offer would have tenors of 5.5, 10.5 and 25 years. This follows the government’s $2 billion three-tranche global bond offering in October 2022.
Credit watcher Moody’s Investors Service said it assigned an investment grade rating of “Baa2” to the Philippine government’s shelf program filed with the United States’ Securities and Exchange Commission and the dollar-denominated bond offerings drawn from the shelf program, which include tranches maturing in 2028, 2033 and 2048.
Moody’s said the bonds would constitute direct, unconditional and unsubordinated obligations of the government of the Philippines.
The proceeds from the bonds are intended for general purposes including budgetary support and the repayment of a portion of the government’s borrowings. The ratings mirror the Philippines’ issuer rating of “Baa2.”
Fitch Ratings also assigned a ‘BBB’ rating on the bond offering, in line with the Philippines’ ‘BBB’ long-term foreign-currency issuer default rating.
Finance Secretary Benjamin Diokno said in December last year the government was planning to raise up to $3 billion from the issuance of retail dollar bonds to local investors, particularly overseas Filipino workers, in the first quarter of 2023.
Retail dollar bonds are part of the government’s program to make government securities available to retail investors. Aside from raising funds for priority projects, retail dollar bonds are issued to diversify funding sources of the government as well as promote financial literacy and inclusion.
“The Philippines’ Baa2 issuer rating takes into consideration high potential growth and a moderate government debt burden as compared to peers, as well as a sufficiently strong external position to meet forthcoming cross-border payment obligations and weather capital flow volatility,” Moody’s said.
It said structural credit challenges include low per capita income and some constraints to the quality of institutions, which stand in contrast to strong policy effectiveness. The Philippines also has a heightened susceptibility to environmental risks given the high incidence of climate-related shocks.
Moody’s said it expected the recovery in real GDP growth to persist amid the deterioration in global credit conditions in the near-term, and converge towards potential rates of around 6 percent per annum beyond 2022.
“Unless the Philippines faces sustained and irreversible damage to domestic labor markets, a significant and prolonged drop in remittances or an acceleration in the fragmentation of regional supply chains, growth potential will continue to be boosted by favorable demographics and ongoing improvements in the investment climate,” it said.
