Philippines Adds to Record Sovereign Debt Sales in Asia for $1.5 billion sold bond

 

The Philippines sold $1.5 billion of bonds, adding to the busiest week for Asian sovereigns on record as slowing U.S. stimulus threatens to increase funding costs.

 

The nation, Southeast Asia's fastest-growing economy, sold 10-year bonds to yield 4.2 percent, according to data compiled by Bloomberg. That brings total dollar-denominated issuance by Asian governments since Jan. 6 to $6.5 billion, the most in data compiled by Bloomberg going back to 1999. Indonesia and Sri Lanka sold $5 billion earlier this week.

 

Asian governments are looking to borrow after the Federal Reserve announced it would taper record stimulus, increasing the yield on benchmark U.S. debt. Interest rates on 10-year Treasuries have risen 1.34 percentage points since May, when the central bank indicated it was considering trimming bond purchases. The average cost of dollar funds for the region's sovereigns rose as high as 5.83 percent in September, up from an average 4 percent in 2012, JPMorgan Chase & Co. indexes show. Borrowers now pay 5.16 percent.

 

"Philippine authorities are trying to lock in current yields," said Desmond Soon, a Singapore-based fund manager at Western Asset Management Co., which oversees $442.7 billion globally. "There is expectation U.S. Treasury yields will go higher over the course of the year."

 

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Scarcity Appeal

 

The Philippines, which won investment-grade ratings from Standard & Poor's, Moody's Investors Service and Fitch Ratings Ltd. for the first time in 2013, last sold dollar debt in January 2012, according to data compiled by Bloomberg.

 

U.S. investors bought 53 percent of the country's latest sale, according to a statement from the Philippines' finance department. Fund managers took 71 percent.

 

"To get exposure to the Philippines is becoming more difficult since less material is out in the market," Sergey Dergachev, who helps oversee about $9 billion as a senior portfolio manager at Union Investment Privatfonds in Frankfurt, wrote in e-mailed responses to questions. "New issues are the best opportunities."

 

The notes, which priced at par, climbed to 101 cents on the dollar as of 2:10 p.m. in Manila, according to Standard Chartered Plc prices.

 

Bond Buyback

 

The country, whose $250 billion economy grew at least 7 percent in the five quarters through September, will use some of the proceeds from the sale to buy back foreign-currency bonds and for budgetary support, among other general purposes. The nation has agreed to pay $1.08 billion to buy back notes from six offerings, a person familiar with the matter said today, asking not to be identified because the details are private.

 

"This exercise is in line with the government's overall objectives of prudent and proactive liability management, and resulted in interest-cost savings as well as extended the average debt maturity profile of the Philippines," Treasurer Rosalia de Leon said in the finance department's statement.

 

The yield on the nation's $1.6 billion of bonds due in 2025 fell 17 basis points, or 0.17 percentage point, to 4.37 percent yesterday, according to data compiled by Bloomberg.

 

Sovereign Uptick

 

Mexico sold $2.5 billion of debt due in 2021 and 2045 in its first international offering since its credit rating was lifted last month by S&P. Earlier this week, Poland sold the most euro-denominated bonds in four years, taking advantage of the growing gap between borrowing costs in the shared currency and dollars.

 

Asian sovereign bonds lost 7.2 percent last year, the most since 2008, according to the JPMorgan indexes. Tighter funding conditions in the U.S. dollar market are bringing some of emerging Asia's vulnerabilities into focus, Fitch Ratings wrote in a note dated yesterday.

 

South Korea and Thailand may sell dollar bonds this year while Indonesia could return with a second offering, according to Avanti Save, a Singapore-based credit strategist at Barclays Plc.

 

Indonesia sold $2 billion each of 10-year and 30-year bonds on Jan. 7, data compiled by Bloomberg show. The 10-year bonds priced to yield 5.95 percent, the data show. Sri Lanka meanwhile raised $1 billion from a sale of five-year notes a day earlier, the data show. - Bloomberg

 

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USA will build More Environment Friendly Nuclear Power Plants ; Philippines recommended

Is nuclear power the answer to climate change?

 

James Hansen's latest press conference was positively scary.

 

NASA's former chief climate scientist (he recently left government to pursue a more activist role) met with environmental journalists last month at Columbia University to release a new study with the ominous title, "Assessing Dangerous Climate Change: Required Reduction of Carbon Emissions to Protect Young People, Future Generations and Nature."

 

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Hansen and his co-authors contend that the agreed-to goal of limiting global warming to two degrees Celsius (3.6 degrees Farenheit) above pre-Industrial levels prescribed in the recent Intergovernmental Panel on Climate Change report is still too high to prevent "long-lasting, irreversible damage" to our planet — including raising sea levels, submerging coastal cities and turning vast tracts of the earth into virtual furnaces.

 

Hansen departs from environmental orthodoxy, however, in arguing that there is no way to cut greenhouse gas emissions sufficiently by relying solely on green alternatives like solar and wind power.

 

"Suggesting that renewables will let us phase rapidly off fossil fuels in the United States, China, India, or the world as a whole" Hansen writes in an essay, "is almost the equivalent of believing in the Easter Bunny and Tooth Fairy."

 

Hansen's controversial conclusion is that [the U.S.] needs to build a new generation of nuclear power plants. Nuclear alone, in Hansen's view, has the potential to produce "clean" (carbon-free) electricity in the prodigious amounts that we will need it in the decades ahead.

 

His assertion is controversial for a number of reasons. First is the still unresolved problem of what to do with the radioactive waste products from nuclear power production. Second is the potential weaponization of plutonium, a real concern given the threats of global terrorism. Third, in the post-Fukushima world, is whether nuclear plants can ever be made safe enough to build near large population centers, or in regions prone to earthquakes, floods and other natural disasters.

 

Hansen counters that, even factoring in the possibility of freak accidents, nuclear energy production is still far less harmful than coal-fired power plants. Those don't just contribute mightily to the burden of greenhouse gases, he explains, they spew particulates into the atmosphere, leading to tens of thousands of deaths from lung and heart diseases in the United States every year. (In places like China, the numbers are in the hundreds of thousands.)

 

Other environmentalists acknowledge the atmospheric benefits of nuclear power, but still remain wary. Ralph Cavanagh, co-director of the Natural Resources Defense Council's Energy Program, says, safety concerns aside, nuclear power plants are just not cost-effective. With the prohibitively high price of new plants, none has been built in the United States since the Three Mile Island reactors were completed in 1974. Indeed, several aging plants have been closed recently, and more are slated to be shut down soon.

 

"We're prepared to see the competitive process work its will," Cavanagh told me. "We are convinced that energy efficiency and renewable energy will decisively defeat nuclear, as indeed they have for the past 40 years in the United States."

 

Cavanagh says we need to focus on getting to a low-carbon energy future, and not try to guess what precise mix of approaches will get us there. It will take a mix, he insists. No single technology can do the trick. While the NRDC and other environmental groups do not completely rule out a role for nuclear, they consider wind and solar as better options — and more likely to succeed.

 

Nuclear power generation is now flourishing in only three countries, France, Russia and China — all nations where the state has aggressively subsidized its development. In France, the huge government-owned utility Électricité de France now has 70 percent of its electricity generated by nuclear power, up from only 8 percent a decade ago.

 

Electricity "is much cheaper in France than in Germany," Hansen told me, "because the French have mostly nuclear power while Germany has renewables." He says that we should follow France's lead.

 

But it is hard to see how the French model could fly in the United States, where energy decisions are made not by central planning, but by marketplace compensation. Hansen and environmental groups agree that mechanisms like a carbon tax will be necessary to spur the growth of clean technologies. It is questionable, however, whether even this powerful goad would be enough to revive a nuclear industry now languishing on life support.

 

Hansen is looking to the Integral Fast Reactor, a design that has been on the drawing boards for decades. But it has yet to be built — largely because it is viewed as being too expensive. This fourth generation nuclear plant, he says, would be far safer than what we have now, and would be fueled entirely from the byproducts of current nuclear plants. Fast Reactors would potentially burn 99 percent of their fuel and produce little toxic waste.

 

But this technology will require far more research and development before construction costs fall enough to tempt utilities. Where that R&D money will come from — in an era of diminishing [U.S.] government spending on science, as well as declining industry research budgets — is the question. The electric power industry has little incentive to develop tricky new technologies with cheap natural gas now pushing their production costs to new lows.

 

Hansen remains hopeful, however. Perhaps irrationally so, given the notoriously long lead times, cost overruns and the legal as well as technological problems that often bedevil new nuclear plants. He is urging Washington to cooperate with China to build reactors with good designs.

 

"If we don't help China by cooperating in nuclear power technology development and deployment," Hansen predicts, "they will do it themselves. That will be unfortunate, for two reasons. It will be slower and thus it will include a lot of coal use, such as building of many syngas plants [production of gas from coal, which has a bigger carbon footprint than burning coal directly]. And it will make them the leaders in nuclear technology. Too bad, it should have been the U.S."

 

Hansen may convince some environmentalists that green nukes could help to save the planet. But– barring a major technological breakthrough – he won't be able to convince electric utilities that nuclear plants could save them money. And, for the time being, they are the people whose opinions matter.  — Reuters

 

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