February 22, 2008 / 3:28 AM / 11 years ago

UPDATE 1-Manila may issue $1.5 bln worth of warrants for bonds

(Adds background, central bank statement)

MANILA, Feb 22 (Reuters) - The Philippines said on Friday it expects to issue around $1.5 billion worth of debt-exchange warrants to holders of its foreign currency bonds this month.

Bids for the warrants, which will allow holders of foreign currency bonds to convert to peso bonds in the event of a government default, were due by 5 p.m. New York time (2200 GMT) on Friday, the government said in a statement.

The issue price and the results of the auction will be announced on Monday at 9 a.m. New York time. A minimum price of $7.50 per warrant has already been set.

The bond warrants will give holders of Philippine sovereign bonds maturing until 2017 the option, in case of a debt default, to exchange their exposure into peso-denominated Treasury bonds maturing in 2018.

The Philippines said the it does not plan any further issuance of warrants for the 2017 bonds.

The paired warrant is different to credit default swaps (CDS), which also offer insurance-like protection to bondholders, as the CDS settles in cash while the “paired warrant” gives peso T-bonds in exchange.

The warrant issue is aimed at making Philippine sovereign bonds more attractive to investors as paired warrants carry zero risk weighting for capital adequacy purposes, the same as peso-denominated T-bonds.

Sovereign bonds normally carry 100 percent risk weighting under the new Basel II rules and banks need to match their holdings of risky instruments with the required capital to avoid stiff penalties.

To further boost appetite for the warrant issue, the Philippine central bank said on Friday it had relaxed further its rules on bank holdings of bond warrants.

Transactions involving warrants will be exempted from derivative licensing requirements, the central bank said in a separate statement.

Warrants held for trading will also be exempted from capital charges as long as they are paired with foreign currency bonds.

“This is to encourage maximum participation of the banking industry in the paired warrants programme of the Philippine government,” the monetary authority said.

Reporting by Carmel Crimmins, editing by Jacqueline Wong

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