By FIL C. SIONIL.
Asia Development Bank (ADB) has tapped the services of HSBC to lead underwrite its five-year zero coupon bonds with a face value of roughly between P2.3 billion and P3 billion, which will be used for relending.
Banking sources told Business Bulletin that the HSBC is set to start the book-building exercise this week, hoping to raise a net value of
P1.5 billion.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M.Tetangco, Jr. affirmed the ADB float.
Tetangco shared with Business Bulletin that the approval has already been given to the multilateral institution to raise funds from the domestic market for its fund management.
The face value of the ADB issue is estimated to hit a minimum of
P2.3 billion and will, definitely, not exceed P3 billion. Zeroes are sold at a discount.
"The board has already approved it. It is more for their liquidity management," said Tetangco when asked to confirm the ADB planned issue.
A banker believed ADB as the issuer will be at an advantage of floating a zero coupon rather than floating debt notes with bullet maturity. Because there "is no cash flow payment" required on a monthly or quarter or semi-annually.
A holder of zero coupon bonds will not earn an interest periodically but will get the amount of his exposure plus the accrued interest at the maturity of the debt instrument.
This type of investible instrument is particularly suited for insurance and pre-need firms that need to hedge or re-investment risk, thereby, avoiding any shortfall for its future payments.
"In zeroes, you don’t have the coupon payment that you need to re-invest. While, coupon bearing bonds, you have to re-invest at least 10 percent of its YTM (yield to maturity) periodically, say every six months," International Exchange Bank Treasurer Ed Bunye explained.
Bunye said ADB will get a lower coupon rate because of its status as riskfree "supranational."
Zero coupons could be paralleled to treasury bills, which banks and financial institutions buy at discount in the primary market.
A debt instrument with bullet maturity means that the principal repayment, which does not includes interests, is paid at maturity of the debt notes. Investors are paid interests periodically, either quarterly or semi-annual.
