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EMERGING MARKETS ASIA-PACIFIC

Samurai sails through

„ PHILIPPINES South-East Asian sovereign achieves lower coupons, tighter spreads

The REPUBLIC OF THE PHILIPPINES raised a capped

¥92bn (US$860m) from a four-tranche Samurai

bond on Friday, a decent size after the Federal

Reserve’s FOMC statement and the escalating

US-China trade war heightened market volatility.

The offering comprised a ¥30.4bn 0.18%

three-year tranche, a ¥21bn 0.28% five-year, a

¥17.9bn 0.43% seven-year and a ¥22.7bn 0.59%

10-year.

The spreads were 23bp, 33bp, 45bp and 53bp

over the respective yen offer-side swaps.

The deal was smaller than the ¥154.2bn bond

the sovereign issued a year ago, but the coupons

were lower and the spreads tighter. Pricing at

tighter spreads was one of the issuer’s goals,

especially after S&P upgraded its credit rating to

BBB+ from BBB on April 30.

In the previous deal, a three-year tranche

priced at 25bp with a 0.38% coupon, a five-year

at 35bp with a 0.54% coupon, and a 10-year at

60bp with a 0.99% coupon.

Bankers on the deal said that some investors

were put off as they found the spreads too tight

compared with other sovereign Samurai bonds

with similar ratings.

In May, Indonesia (Baa2/BBB/BBB) printed

a 0.54% three-year bond at 52bp over swaps, a

0.83% five-year at 80bp over, a 0.96% seven-

year at 88bp over, and a 1.17% 10-year at 100bp

over, together with 15-year and 20-year tranches.

The following month, Mexico (A3/BBB+/

BBB) sold three, five, seven and 10-year bonds

at spreads of 68bp with a 0.62% coupon, 88bp

with a 0.83% coupon, 105bp with a 1.05%

coupon and 120bp with a 1.30% coupon.

Nonetheless, both the Philippines’ three-year

and five-year tranches drew demand, mainly

from domestic banks, while the two longer

tranches attracted life insurers.

In addition to domestic demand, there

was also a good level of interest from foreign

investors, especially in Asia.

Non-Japanese investors found the Samurai

bonds attractive as they priced 40bp or more

over the issuer’s US dollar curve.

The Philippines’ US dollar bonds usually

trade tight compared with sovereigns with

similar credit ratings because of strong interest

from Philippine banks, which have ample US

dollar cash balances thanks to remittances from

overseas workers.

According to the latest data from central bank

Bangko Sentral Ng Pilipinas, cash remittances from

overseas Filipinos in 2018 came to US$28.94bn.

Even with the reduced deal size, actual

demand from institutional investors looks to

have increased, a banker on the deal said. The

previous deal had been bulked up by a big order

from Japan Bank for International Cooperation,

but it did not participate this time.

Final orders were about ¥130bn, which was

quite impressive given the lower yields and

market volatility. Since Indonesia priced its bonds

in mid-May, five-year yen swap rates have fallen

more than 8bp on expectations that a rate cut

by the US Fed might put pressure on the Bank

of Japan to ease. Meanwhile five-year USD/JPY

basis swaps started widening abruptly the prior

week and hit minus 54bp during the marketing

period, the widest since March 2018.

The three, five and 10-year tranches landed

near the tighter ends or near the middle of the

initial guidance ranges of 20bp–35bp, 30bp–

40bp and 50bp–55bp. Notably, the seven-year

tranche priced outside of the initial range of

30bp–40bp. A revision outside the initial range

is extremely unusual in the yen market, but the

issuer did so because of a reverse enquiry from

some investors.

Daiwa, Mitsubishi UFJ Morgan Stanley, Mizuho,

Nomura and SMBC Nikko were lead managers

on the deal, which is rated BBB by JCR and has

expected ratings of Baa2/BBB+ (Moody’s/S&P).

Takahiro Okamoto