The Philippines’ inaugural issue of Panda bonds on March 20 shook up the renminbi-denominated market with an “exceptionally tight debut” that marked the largest oversubscription ever of any sovereign Panda bond float, according to the International Financing Review Asia.
IFR Asia said in a report the Philippines set a record in the Panda bond market as almost 90 percent was cornered by offshore or overseas buyers, helping the Philippines “smash through pricing expectations” and prompting other issuers grappling to understand this “achievement” and wondering why they had to pay higher spreads on their own floats.
The final pricing on the Philippines’ Panda bonds “represented a spread of only 35 basis points over the three-year notes of China Development Bank [rated Aa3 by Moody’s and AA- by Standard and Poor’s], and no premium at all over the 10 billion renminbi three-year issue of Central Huijin, a unit of sovereign wealth fund China Investment Corp., also priced at 5 percent last week [March 16],” IFR Asia said.
This means the three-year Philippines’ maiden Panda bond issue was above the benchmark rate, with overwhelming demand pushing the coupon rate to its lowest at 5 percent, it said. Julito G. Rada
“Of the five sovereign Panda bond issuers so far, only South Korea, rated five to six notches higher than the Philippines, was priced at a tighter spread over CDB,” the report said.
It said the Philippines’ offering was 6.3 times covered with 9.2 billion renminbi orders, which was the “biggest book and largest oversubscription of any sovereign Panda to date.”
IFR Asia traced the successful float to the “meticulous planning” by Philippine officials who visited China last year to discuss investment opportunities in the country’s ‘Build, Build, Build’ infrastructure modernization projects with Chinese investors, and later on sealed the underwriting deal with Bank of China for the Panda offering during Premier Li Keqiang’s visit to Manila in November.
It said that on March 14 to 16, or a week before the deal, a Philippine team led by National Treasurer Rosalia de Leon and Bangko Sentral ng Pilipinas Geputy Governor Diwa Gunigundo met with potential investors in a series of international roadshows in Singapore, Hong Kong and mainland China.
The Panda bonds were rated ‘AAA’ by China’s Lianhe Credit Rating Co. Ltd. The Philippines became the first Asean sovereign to issue Panda bonds on March 20.
Finance Secretary Carlos Dominguez III said “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” and is also “one of the concrete results of President Duterte’s independent foreign policy.”
Dominguez said the Duterte administration was 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.
He said the Philippines’ maiden issue of Panda bonds also affirmed the country’s improving bilateral relations with China, following President Duterte’s recalibration of its foreign policy towards Asean and its major Asian partners China, Japan and South Korea.