IFC set to issue US$100 million peso green bond in the Philippines

Deal part of agency’s efforts to develop Philippines’ corporate bond market

Jingdong Hua, vice-president and treasurer of IFC
Jingdong Hua, vice-president and treasurer of IFC

MANILA – The International Finance Corp (IFC) is set to issue its first peso green bond as part of the agency’s efforts to develop the Philippines’ corporate bond market. Subject to market conditions, it hopes to launch the deal in the coming weeks, says Jingdong Hua, vice-president and treasurer of IFC.

Hua told The Asset that the likely size of the issue could be just under US$100 million equivalent. “We are supporting a client in the Philippines in the renewable energy sector,” he says. “We have received all the approvals and it is really now sounding out the market. If market conditions are right, we are ready to proceed.”

He says that as a triple A-rated issuer and having issued local currency bonds in many countries recently, including in the Peruvian sol, Indian rupee, Chinese yuan, Turkish lira, Mexican peso, Colombian peso, “we would be very happy to issue in the Philippine peso market”.

He believes the opportunity to develop the Philippine corporate bond market is considerable. “If you look at Southeast Asia, the most developed corporate bond market is in Malaysia, accounting for 45% of GDP,” Hua explains. “We are talking about US$120 billion of corporate bonds outstanding; that is a huge amount of savings that through the transparent intermediation of the capital market have gone to invest in private sector financing.”

Unlike Malaysia, he notes that the Philippines is much more of a bank-centric model. “The corporate bond market is less than 7% of GDP [in the Philippines]. That compares with Thailand’s 20%, China and South Korea’s 80%.”

Hua believes there is huge potential to develop the local currency bond market and to use the capital market to diversify funding for corporates in the Philippines. “Eventually, banks will have to move to Basel III; under Basel III, long-term project financing consumes too much economic capital for banks.”

The capital market can provide an alternative to connect savings from pensions to insurance companies and asset managers, and through a standardized and transparent bond offering that allocates the right risk/return through the bond market, he explains. “I am very optimistic that the Philippine market will follow what has happened in Thailand and Malaysia.”

Given Philippines’ GDP, which is about US$300 billion; 5% of that is US$15 billion, he continues. “Just imagine, once the Philippine corporate bond market reaches 20%, you are talking about US$60 billion of financing.” The other value in building the bond market is it helps build the savings industry by giving savers more choices of asset classes.

Hua agrees that there are challenges in developing the peso bond market not least the ample liquidity in the banking market today. “I would urge corporate treasurers to always think about diversification of funding sources. Even if it takes a little bit longer to do the first bond issue. But longer term, and once you have established yourself as a reputable bond issuer, you will have more reliable sources of funding.”

Cover photo: ADB

Date

3 May 2018

Channel

Share this article