ADB mobilizes Philippine peso funding

As part of an ongoing programme of issuing local currency bonds, the Asian Development Bank has tapped the peso bond market, offering four-year bonds at a fixed rate

The Asian Development Bank (ADB) on February 8 raised 5.2204 billion pesos (US$100 million) from a new issuance of local currency bonds in the international capital markets.

ADB had already issued bonds in the Philippine domestic capital markets during 2005 and 2007, but the latest offering was the first time it has mobilized Philippine peso funding from international investors through a currency-linked structure.

Proceeds from the bonds will be used to support ADB's growing local currency operations in the Philippines and also help to mitigate the foreign exchange risk for ADB borrowers.

The bonds pay a fixed interest rate of 5.25% and have a final maturity of four years. The paper was fully placed with institutional investors in Asia, Europe and the Americas. J.P. Morgan was the sole lead manager for the transaction.

ADB has been issuing local currency bonds in its member countries and the bank treasurer Pierre van Peteghem hopes that the Philippines can become a cornerstone of this programme going forward.

ADB in October 2005 priced its debut Philippine peso bonds in the domestic capital markets amounting to 2.5 billion pesos. With an implied yield of 8.7% per annum, the bonds had a bullet maturity of five years and one day. It returned to the Philippine domestic bond market in May 2007 with a five billion peso offering, paying a fixed rate of 5.23%. The second deal had a similar bullet maturity of five years and one day.

While it is a regular borrower in the mainstream international bond markets, ADB has also led the bond issuance in developing Asian countries as part of its efforts to promote the domestic bond market as an alternative funding source to bank lending.

Apart from the Philippines, the bank launched its inaugural offering in the Malaysian ringgit bond market in November 2004 with the issuance of the so- called Putra bonds amounting to 400 million ringgit (US$98.28 million).

In another pioneering deal, ADB debuted in the Thai baht bond market in May 2005 with a four billion baht (US$127.20 million) issue, which was priced at par with a semi-annual coupon of 3.87% per annum. The deal also represented the first issuance in the domestic bond market by a foreign entity and the first by a supranational issuer.

In Indonesia, ADB issued in December 2017 its maiden offshore rupiah-linked bonds amounting to one trillion rupiah (US$71.30 million). Structured as an 11-year fixed rate bond maturing in December 2028, the offering paid a semi-annual coupon of 6.30%. The bonds were placed mainly with banks and fund managers in the Americas and Europe.

The transaction was the first such bond issue from a multilateral development bank, and the first time for a multilateral development bank to raise Indonesian rupiah funding to support local currency loans in the same currency.

In January this year, the bank issued its first domestic bond in Kazakhstan tenge amounting to 30.4688 billion tenge (US$80 million) in two tranches of five years and seven years.

Overall, ADB raised more than US$23.5 billion from the capital markets in 2018. Also, in January this year, it kick-started its fund raising with a US$3.5 billion trade for five years. The bonds were priced at 99.498% with a coupon of 2.625% to offer a yield of 14.9bp over the US treasuries.


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