The Philippines’ inaugural issue of Panda bonds last March 20 shook up the renminbi-denominated market with an “exceptionally tight debut” that marked the largest oversubscription ever of any sovereign Panda bond float, according to an International Financing Review (IFR) Asia report.

IFR Asia said the Philippines set a record in the Panda bond market as almost 90 percent was cornered by offshore or overseas buyers, helping the Philippines “smash through pricing expectations” and prompting other issuers grappling to understand this “achievement” and wondering why they had to pay higher spreads on their own floats.

The final pricing on the Philippines’ Panda bonds “represented a spread of only 35 basis points over the three-year notes of China Development Bank (rated Aa3 by Moody’s and AA- by Standard and Poor’s), and no premium at all over the 10 billion renminbi three-year issue of Central Huijin, a unit of sovereign wealth fund China Investment Corp., also priced at 5 percent last week [March 16],” the IFR Asia report said.

This means that the three-year Philippines’ maiden Panda bond issue was above the benchmark rate, with overwhelming demand pushing the coupon rate to its lowest at 5 percent.

“Of the five sovereign Panda bond issuers so far, only South Korea, rated five to six notches higher than the Philippines, was priced at a tighter spread over CDB,” the report said.

It likewise pointed out that the Philippines’ offering was 6.3 times covered with 9.2 billion renminbi orders, which is the “biggest book and largest oversubscription of any sovereign Panda to date.”

IFR Asia traced the successful float to the “meticulous planning” by Philippine officials who visited China last year to discuss investment opportunities in the country’s “Build, Build, Build” infrastructure modernization projects with Chinese investors, and later on sealed the underwriting deal with Bank of China for the Panda offering during Premier Li Keqiang’s visit to Manila in November.

Then on March 14 to 16, or a week before the deal, a Philippine team led by National Treasurer Rosalia de Leon and Bangko Sentral ng Pilipinas (BSP) deputy governor Diwa Gunigundo met with potential investors in a series of international roadshows in Singapore, Hong Kong and mainland China, the report bared.

The Panda bonds were rated “AAA” by China’s Lianhe Credit Rating Co. Ltd.

The Philippines became the first ASEAN sovereign to issue Panda bonds last March 20.

According to Finance Secretary Carlos Dominguez III, “the Philippine government’s successful inaugural issuance of Panda bonds highlights the investor confidence that the country enjoys on the back of its strong credit profile” and is also “one of the concrete results of President Duterte’s independent foreign policy.”

“The Duterte administration is committed to sustaining the growth momentum and making the economy a more inclusive one by way of massive investments in infrastructure and human capital development. It intends to pursue this unprecedented level of public spending while maintaining sound economic policies and observing fiscal discipline,” Dominguez said.

He said the Philippines’ maiden issue of Panda bonds likewise affirms the country’s improving bilateral relations with China, following President Duterte’s recalibration of its foreign policy towards the ASEAN and its major Asian partners China, Japan and South Korea.

The Philippines’ participation in the Panda bond market also highlights the increasing relevance of the Renminbi. In 2016, the International Monetary Fund (IMF) included the Renminbi in the Special Drawing Rights’ (SDR) basket of currencies.

According to the BSP’s Investor Relations Office (IRO), the government’s successful issue now opens the door for the private sector to access the onshore Chinese bond market for financing.

Bank of China served as lead underwriter of the bond issuance, and Standard Chartered Bank as joint lead underwriter.

Beyond the Panda bond issuance, Bank of China has supported the Philippines in several initiatives, including the development of the Renminbi spot market in the Philippines, the IRO said.

The bond issuance came amid the consistently strong performance of the Philippine economy in nearly twenty years, making it one of the fastest growing economies in Asia. The Philippines grew by 6.7 percent in 2017 after expanding by 6.9 percent the previous year.

Its economic outlook remains robust, with the government expecting growth to hit the official target range of 7.0 to 8.0 percent this year until 2022.

Anticipated growth drivers over the medium term are the government’s massive infrastructure spending and rising investments in social services, as well as growing private-sector investments, which have led in part to the resurgence of the manufacturing sector, and robust household consumption.

Under its unprecedented “Build Build Build” program, the Philippine government intends to spend around $170 billion in the next five years up to 2022 on big-ticket projects that include roads, airports, subways, and other mass transit systems.

The Duterte government is also undertaking a Comprehensive Tax Reform Program (CTRP), the first package of which–the Tax Reform for Acceleration and Inclusion (TRAIN) Law–took effect last Jan. 1, to modernize the country’s tax system and help provide a steady revenue stream for its high and inclusive growth agenda anchored on the “Build Build Build” program.

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