Phaseout of LIBOR a factor in borrowings
THE Philippine government’s foreign borrowings next year would take into account unstable benchmark interest rates amid the phaseout of the London interbank offered rate (LIBOR), a Finance official said.
Foreign borrowings for 2022 will start with official development assistance (ODA), followed by commercial borrowings.
“We go through multilateral ODA first, then bilateral ODA, then commercial borrowing because we want to minimize the overall financing cost and lengthen the tenor of our portfolio,” Finance Undersecretary Mark Dennis Y.C. Joven told a news briefing on Dec. 15.
Investors are facing a year-end deadline to stop basing new loans and trades on the discredited LIBOR, prompting central banks to look for alternative benchmarks.
LIBOR is being phased out as a reference rate after it was manipulated before and during the 2008 financial crisis. There have also been concerns about the amount of derivatives using the benchmark, which in many cases was based on assumptions about their borrowing costs and not actual trades.
Some LIBOR rates will stop being published after Dec. 31, while others are set to end in mid-2023.
Mr. Joven said they would consider overall financing costs, swap rates and tenors in their decision-making. “At the point of issuance, we have to compare each modality and see which makes sense for us.”
The first issuance in both 2020 and 2021 were euro bonds because interest rates for the currency were low and demand was robust, he said.
“Now for 2022, we have to consider that there’s a global change in benchmark rates,” he added.
Mr. Joven said the resulting market instability in the near term had prompted the government to tap multilateral official development assistance more “just in case the market becomes a little bit choppy.”
The government borrows from local and foreign creditors to finance the budget deficit that has widened since last year after the coronavirus pandemic stalled the economy and pulled down tax collections.
State gross borrowings from foreign creditors in the 10 months to October slid by 9.7% to P518.71 billion from a year earlier.
The Treasury bureau raised P146.17 billion from global bonds, P121.97 billion from euro-denominated notes and P24.19 billion in Japanese yen-denominated securities. It also incurred P139.98 billion in program loans along with P86.41 billion in project loans.
The government has repaid P223.93 billion of its outstanding foreign debt so far, resulting in P294.78 in net foreign borrowings for 10 months.
In April this year, the government raised €2.1 billion (P122.4 billion) from a triple-tranche offering of euro-denominated bonds as it took advantage of low interest rates in the euro bond market.
It sold €650 million worth of four-year global bonds, another €650 million of 12-year notes and €800 million of 20-year debt. — Jenina P. Ibañez
