13 Apr 2010
The Power Sector Assets and Liabilities Management (PSALM) Corporation has successfully completed the sale of PhP30 billion worth of five- and seven-year fixed-rate retail bonds today, 13 April 2010.
Following roadshows that were held in Manila, Cebu and Davao prior to the auction, the PSALM peso bond issue, the largest peso-denominated debt issue so far this year, were priced at yields of 6.875% for the five-year tranche and 7.750% for the seven-year tranche, or 36 bps (basis points) and 43 bps above the five- and seven-year benchmarks, respectively. (Basis points refer to the yield on bonds, with each percentage point of yield in a bond equaling to 100 basis points. For example, if a bond yield changes from 7.25% to 7.39%, that is a rise of 14 basis points.)
This is the first time that PSALM has tapped the domestic capital markets. Strong demand from domestic investors made the issue 1.7 times oversubscribed at the auction.
The bonds were offered to Government Securities Eligible Dealers through a Dutch auction. (Dutch auction, also known as descending price auction, uses a bidding process to find an optimal market price for the bond the highest price at which an issuing company can sell all the available shares.)
Total tenders during the auction reached PhP33.71 billion, with demand reaching PhP19.08 billion for the five-year paper and PhP14.64 billion for the seven-year paper. The PhP20 billion awarded by PSALM during the auction was divided equally between the two tranches at PhP10 billion per tenor. The remaining PhP10 billion was sold through public offering.
The total amount for the five-year peso bonds are PhP11.32 billion, while the seven-year peso bonds are PhP18.68 billion.
Acting Energy Secretary Jose C. Ibazeta was appreciative of the PSALM bond offering. "I congratulate PSALM on its successful debut in the domestic market" he said. "The timing of this issuance was perfect as PSALM took advantage of the deep liquidity in the domestic financial system. The success of this landmark transaction is a clear indication of the public's confidence in both PSALM and the power sector in general."
The offer period of the bonds to the general public formally began after the auction and will continue until 19 April. During this time, retail investors may subscribe to the bonds through authorized selling agents, a list of which is available in the Bureau of the Treasury Web site.
The PSALM bonds carry the full, irrevocable, and unconditional guarantee of the Republic of the Philippines through the Department of Finance. The bonds can also be used as reserve assets of insurance companies.
The proceeds from the bond issuance will be used by PSALM to augment its working capital and support its liability management program.
The issue was jointly managed by the Development Bank of the Philippines, the First Metro Investment Corporation, and The Hongkong and Shanghai Banking Corporation Limited.
PSALM was created under Republic Act No. 9136, the Electric Power Industry Reform Act of 2001, to manage the privatization of the power assets and handle the liabilities of state utility National Power Corporation.
Corporate Communications Division