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Gov’t prepares for dual-tranche benchmark-sized dollar bond sale

Credit watchers S&P Global Ratings, Fitch Ratings and Moody’s Investors Service on Wednesday assigned investment-grade scores to the Philippine government’s proposed dual-tranche and benchmark-sized US dollar-denominated bond offerings that will mature in 2031 and 2045.

The proceeds from the bond issuances are intended for general purposes, including budgetary support.  The Bureau of the Treasury did not comment on the size of the offering, but its bond offering in April raised $2.35 billion.

S&P said the new notes “represent direct, general, unconditional, unsecured, and unsubordinated obligations of the sovereign, and rank equally with the Philippines’ other unsecured and unsubordinated debt obligations.”

Moody’s said the rating mirrored the government of the Philippines’ issuer rating of Baa2 or investment grade.  The Baa2 issuer rating was characterized in recent years by strong economic performance, a strengthening fiscal position and limited vulnerability to external shocks, although the global coronavirus pandemic will disrupt or potentially reverse these trends, it said.

Fitch said the rating was in line with the Philippines’ long-term foreign-currency issuer default rating of ‘BBB’ with a stable outlook. Fitch affirmed the Philippines’ rating on May 7, 2020 but revised the outlook to stable from positive.

Moody’s said structural credit challenges included low per capita income and some constraints to the quality of institutions, which stand in contrast to strong policy effectiveness.

“Following a sharp economic contraction in 2020, the worst outturn in 35 years, real GDP growth will rebound in 2021 and converge towards potential rates of around 6 percent per annum thereafter. Unless the Philippines faces a significant and prolonged drop in remittances and 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,” Moody’s said.

Moody’s said the fortification of the government’s fiscal position in recent years provides a buffer against a rise in public indebtedness due to shocks such as the ongoing pandemic. While national government debt will approach 50 percent of GDP in 2020, effectively reversing the progress on debt consolidation over the past decade, “debt affordability will erode more moderately owing to gains from revenue reform and lower interest rates in recent years.” 

Moody’s cited the country’s track record of prudent economic and fiscal management, and a robust banking system that contribute to stable access to funding at moderate costs and support prospects for fiscal consolidation and debt stabilization after the shock subsides.

It also took note of the country’s record-high $103.8-billion gross international reserves as of end-October 2020.

“Governance considerations are material to the Philippines’ credit profile and are incorporated in our assessment of institutions and governance strength. The erosion in the Worldwide Governance Indicators for rule of law and control of corruption in recent years partly reflects perceptions of the government’s controversial approach to the illegal drugs trade and alleged suppression of political dissent. However, this has not impaired the effectiveness of the government’s overall economic and fiscal management,” Moody’s said.

Topics: S&P Global Ratings , Fitch Ratings , Moody’s Investors Service , dollar bond sale
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