The Republic of the Philippines (RoP) once again kick-started the sovereign issuance of G3 bonds out of Asia when it priced on January 7 a US$1.5 billion offering.

This time around, though, it was a pure standalone 10-year transaction, without its trademark liability management exercise, which was in line with its objective of achieving cost savings through the reduction of the overall interest expense.

The US SEC-registered deal was priced at 99.736% with a coupon of 3.75% to offer a yield of 3.782%. This was equivalent to a spread of 110bp over the US treasuries, or 20bp tighter than the initial price guidance of 130bp.

At this level, a banker familiar with the deal reckons the RoP pays a new issue premium in the low double-digit range. The most relevant comparable was its outstanding 2028 bonds, which were quoted at a G-spread of 94bp. With the fair value for the new 10-year bonds estimated at about 100bp, the sovereign pays a new issue premium of about 10bp, which given where the rates are today, was a great achievement.

The latest bonds traded up in the secondary market and were quoted at 100.05% in the afternoon of January 8.

The offering represented the first emerging markets’ sovereign US dollar transaction in 2019 and demonstrates the RoP’s ability to respond tactically to conducive market conditions to capture a favourable issuance window.

In executing the transaction, the deal arrangers have been monitoring the market to obtain an optimal issuance backdrop. “For a name like RoP, it was not a matter of can we get the deal done or not. The primary objective for a sophisticated sovereign issuer like them was to deliver an optimal transaction in terms of price and size,” the banker explains.

The transaction was eventually launched as the market rally noted at the end of last week on the back of strong US employment data continued into the Asia morning on January 7. After getting a joint syndicate view in terms of pricing and size that was achievable, the RoP decided to give the green light to execute the deal.

Finance Secretary Carlos Dominguez III describes the transaction as a further illustration of the deepening investor confidence in the Philippines’ growth story and to the ability of President Rodrigo Duterte’s administration to maintain fiscal discipline while spending big on infrastructure modernization, human capital development and social protection for the poor.

The offering generated a strong investor demand, which reportedly peaked at US$4 billion, thus enabling the arrangers to revise the final price guidance to 110bp – the number. Typically, the syndicate puts out a well-defined final price guidance if it has a strong visibility – due to robust order book – that the transaction can be printed at a certain price, which it has at that point in time.

“We have gathered strong support from the global fixed income investor community despite recently heightened volatility in the global markets,” says national treasurer Rosalia de Leon in a statement. “This demonstrates strong conviction from the global investor community on the RoP’s economic fundamentals as well as the depth of our investor outreach.”

The bonds are well-distributed across geographies with 37% of the paper sold in Asia, 28% in the US and 35% in Europe. By type of investors, asset managers accounted for 52%, banks 22%, sovereign wealth funds, pension funds and insurance companies 14%, and private banks and other investors 12%.

Proceeds from the issuance will be used for general purposes, including budgetary support. Bank of China (BoC), J.P. Morgan and Standard Chartered acted as the joint global coordinators for the transaction, as well as joint bookrunners, along with Citi, Credit Suisse, Goldman Sachs and UBS.