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Going back to the market one more time


The Republic of the Philippines has issued a e500 million ($444 million) bond, increased from an original target size of e250 million, maturing in December 7 2006. The issue was priced at 99.865% with a coupon of 9.375% and a yield of 9.41%. The spread over euribor is 500 basis points. Deutsche Bank, UBS Warburg and Salomon Smith Barney acted as lead managers.

Despite having said that it would not borrow further this year, the government is issuing this debt to help refinance the state-owned National Power Corporation (Napocor).

The Philippines has combined public and private external debt of $50.8 billion and the market is concerned about its rising debt levels. The government, however, excludes Napocor from the national borrowing programme. Jose Isidro N Camacho, secretary of finance for the Philippines, explains that: "Napocor has always had to finance itself. Normally we would ask them to do it and we would provide a guarantee. If the spread gets too wide we normally step in." Basically, Napocor's debt is a contingent liability for the sovereign but isn't a direct borrowing obligation.

The mandated firms suggested that the finance ministry raise the money and pass it on to Napocor, rather than the government guaranteeing the debt issued by the power company, because it is a more efficient way to raise capital.

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