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Gov’t to borrow $500-M more in overseas float

By Ruben Hortelano

05/15/2008

The government would likely renege on a vow to limit foreign borrowings this year to $500 million and may soon be issuing another $500 million in a sovereign float before the end of the year.

A pickup in inflation to a near three-year high of an annual 8.3 percent in April had made local borrowings more expensive as banks demanded higher yields on government debt papers in recent auctions.

The government held a sovereign float for $500 million in January, saying then the issues might be the last for this year due to the healthy influx of foreign currencies.

“It (a new $500 million borrowing) is an option. But there is no decision on it yet,” Teves said at the sidelines of the World Bank approval of a stalled loan for the second phase of the National Roads Improvement and Management Project or NRIMP2.

“As you know, interest rates are moving up and the inflation rate has been increasing. That is why we have to check whether it is prudent to consider going back to our previous borrowing mix of 64 to 36 from 70 to 30 in favor of domestic debts.”

Teves said while the government is already convinced of raising the foreign portion of debts this year, it will have to time the float right to achieve maximum gain.

“Again it depends on market opportunities, interest rates and other timing considerations,” Teves said.

Bangko Sentral ng Pilipinas Gov. Amando Tetangco Jr. had said the government has been reconsidering the revision of the debt strategy this year to allow more foreign borrowings.

“I know they are looking into it,” Tetangco said.

The Bureau of Treasury had a string of failed tenders on debt papers particularly treasury bills due to banks’ demands for higher rates.

The government has been faced with rising yields at domestic bond and bill auctions and it had rejected bids at several auctions since February.

Just this month, the Bureau of Treasury rejected all bids for P7 billion of five-year domestic bonds and accepted offers for only P1.971 billion at an auction for P6 billion of 364-day bills because of high rates demanded by investors.

“The market is quite volatile,” Teves told reporters. “The present situation is that interest rates have generally been moving in an upward trajectory, inflation rates have also been increasing,” he said.