BSP, DOF approve ADB’s P3-B zero coupon bonds for home financing
By Des Ferriols
The Philippine Star 06/11/2005
The Bangko Sentral ng Pilipinas (BSP) and the Department of Finance (DOF) have approved the proposed P3-billion zero-coupon peso-denominated bonds by the Asian Development Bank (ADB) to generate funds for domestic home mortgage financing.
The issue is the first of its kind by the ADB and was originally projected to reach only P2 billion but the approved volume has been increased to P3 billion.
BSP Deputy Governor Amando M. Tetangco said the Monetary Board (MB) has approved the issuance, paving the way for the fund-raising exercise that would benefit the low-cost housing sector as well as the construction industry.
Tetangco said the ADB was targeting the housing sector as the main beneficiary since it has a large multiplier effect particularly in terms of job generation.
Because the ADB was a multilateral funding agency with triple A rating, Tetangco said the peso-denominated issue would be very attractive to local investors.
The DOF, on the other hand, said the proposed peso bonds would be issued by the ADB carrying a maturity period of five years and one day from the issue of the bonds.
Finance Secretary Cesar V. Purisima said the terms and conditions would still be negotiated between the ADB and a syndicate of financial institution but the issuance itself has been approved by the DOF.
Purisima said the issue will be exempted from registration rules of the Securities and Exchange Commission (SEC).
According to Purisima, ADB was asking the government to exempt the instruments from the usual taxes but said the tax-exempt status of the bonds would be subject to the confirmation of the Bureau of Internal Revenue (BIR).
"The BIR will have to issue a confirmatory revenue ruling on whether the bonds can enjoy tax-exempt status," Purisima said.
Purisima said the DOF approved ADB’s peso bonds on the provision that it will be structured as zero-coupon securities.
"This ADB issuance augurs well for the further development of the domestic capital market," Purisima said. "It will also provide our financial institutions and their customers with another product to address their investment and financing requirements."
On the other hand, Tetangco said ADB’s original plan to undertake a currency swap has not been ruled out entirely despite the disagreement between the ADB and government negotiators from the Department of ADB’s original plan was for a $200-million swap between the national government and the Asian Development Bank (ADB) that would enable the bank to lend to private borrowers in peso and boost the country’s gross international reserves at the same time.
The Monetary Board approved the plan as early as 2003 where the
The plan was for the ADB to lend the funds based on fairly liberal terms that fixed the interest rate for 12 years. Local borrowers could take advantage of this facility since the ADB already lends to private borrowers anyway.
However, the currency swap was not accepted by the DOF which wanted even more liberal terms in order for borrowers to take advantage of ADB’s high credit rating.
Finance officials said that if the ADB was not willing to pass on this benefit to local borrowers, it was not worth doing the currency swap since it would still be government borrowing.
The BSP, however, was in favor of the plan since it would beef up its GIR and the peso would be available to domestic borrowers who would then be insulated from the fluctuations of the foreign exchange rate since they are borrowing in peso.
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