PLDT bond battle averted, investors forced to wait

PLDT bond battle averted, investors forced to wait

HONG KONG (Reuters): A head-to-head battle for investor funds
between the Philippine government and the country's biggest
telecom firm has been averted after Philippine Long Distance
Telephone Co (PLDT) effectively put back a planned bond issue to
later this year.

PLDT said on Wednesday it would not launch its anticipated
US$600 million deal anytime soon -- even though it won approval
to sell the bonds just weeks ago and European investors were
preparing to bid for them later this month.

Analysts said PLDT's financing costs would have increased by
at least 20 basis points if it had gone ahead at the same time as
the government floats $500 million worth of new sovereign bonds.

"In that regard (PLDT) is perhaps waiting for a clearer
pricing after the sovereign deal," Jason Carley, director of
Asian fixed-income research at Merrill Lynch, told Reuters.

Further price pressure was also looming in the shape of a
jumbo $2.5 billion bond from Hong Kong-based Pacific Century
CyberWorks (PCCW), while sentiment for emerging market risk has
been hit hard by Latin America's economic woes.

"The company continues to examine market conditions and other
factors and does not anticipate carrying out any issuance of
bonds until later in the year," PLDT said in a statement.

The delay will upset some investors who had been keen to buy
into PLDT, a deal that had been billed as a litmus test of the
market's appetite for Asian high-yield -- or junk -- bonds.

With both issuers competing for the same investor base, the
scrutiny of relative value is intense and many in the market saw
the telecom company's bonds as the better buy.

PLDT bonds maturing in 2009 currently trade around 675 basis
points (bps) over U.S. Treasuries compared with about 510 bps for
sovereign paper due in 2010.

That spread differential of 165 basis points, reflecting a
host of political and debt concerns, is in stark contrast to a
historic average of about 50 basis points.

While some bond investors say the risks of owning BB-plus-
rated PLDT remain significant, so are the returns.

PLDT's 2009 bonds are estimated to offer a 12-month return of
18 percent compared with a 10.3 percent return on Telekom
Malaysia paper due 2010.

Philippine dollar bonds have been Asia's best-performing
sovereign assets, providing a return of 12.8 percent so far this
year compared with South Korea's 7.25 percent and Malaysia's 4.48
percent, according to JP Morgan's Asia Credit Index.