National Food Authority (NFA) conducted last Aug. 17 an investor presentation in preparation for a planned Peso Notes Auction.  NFA Administrator Jessup Navarro provided a briefing about the NFA while Undersecretary of Finance Jeremias Paul, Jr. discussed the key investment highlights and the Republic of the Philippines (ROP) guarantee on the Notes.

NFA is preparing to offer to the public in early September about P5bn ofROP Guaranteed Notes.  The Notes will carry the direct and unconditional guarantee of the ROP on principal and all interest and will be issued via a Dutch Auction to be conducted through the Bureau of the Treasury.

The Notes will have an initial maturity of 10 years but are callable by NFA after the 5th year. The interest rate will increase if NFA does not exercise the call option after the 5th year.  The Notes will be priced against the 5-year PDST-F benchmark and will be subject to 20% final withholding tax.

The Notes will be eligible for Agri-Agra compliance and will be qualified as reserve investment and admitted asset of insurance companies by the Insurance Commission.

In February last year, NFA successfully completed it’s debut capital markets transaction and raised P8bn via the issuance of 6.75% ROP guaranteed notes due 2018, callable in 2013.  The 6.75% rate represented a 31bps premium to the 10-year PDST-F benchmark at time of pricing, interest on those Notes will not increase if NFA does not exercise the call option in 2013.

The joint issue managers for both transactions are AB Capital and Investment Corp., Deutsche Bank AG, Manila Branch, Multinational Investment Bancorporation, Philippine Commercial Capital, Inc., SB Capital Investment Corp., and United Coconut Planters Bank.

SAMPLE NFA Step-Up Computation
a) PDST-F Benchmark on Issue Date (example, June 3, 2009):     6.3687
b) Auction Results     8.3750
c) Difference between benchmark and interest rate     2.0063 a) – b)
d) Step-up spread     5.0158 c) x 2.5
Reset date / call option date 4-Jun-14
Case 1
e) 5Y PDST-F Benchmark on June 3, 2014, (1 banking day prior to reset date) 5.0000
f) Original interest rate     8.3750
g) New interest rate if bonds are not called   13.3908 d) plus the higher of e) and f)
Case 2
h) 5 YPDST-F Benchmark on June 3, 2014, (1 banking day prior to reset date) 10.0000
i) Original interest rate     8.3750
j) New interest rate if bonds are not called   15.0158 d) plus the higher of h) and i)
Case 3
k) Auction Results     6.0000
l) Difference between benchmark and interest rate    (0.3687)
m) Step-up spread           – l) x 2.5 or 0, whichever is higher
n) 5Y PDST-F Benchmark on June 3, 2014, (1 banking day prior to reset date) 6.5000
o) New interest rate if bonds are not called 6.5000 the higher of k) and n)