A major Chinese credit rating agency has given the Philippines’ planned issue of some RMB 1.46 billion-worth of “Panda bonds” its highest rating of ‘AAA’ with a stable outlook, citing the country’s “strong and consistent economic growth,” low level of external debt and ample foreign and current account reserves as plus factors for its float this year.

The China Lianhe Credit Rating Co., Ltd. also factored in the strong economic ties between Manila and Beijing and the Duterte administration’s “stable source of payment from growing government revenues” in its positive credit rating assessment for the Philippines’ planned issuance of renminbi bonds.

“… LianheRatings expects the Philippines to have a GDP growth of around 6.80 percent in 2018. At the same time, the unemployment rate of the Philippines is expected to remain stable and CPI (Consumer Price Index) growth may stay within the target band (2 percent-4 percent) set by the BSP (Bangko Sentral ng Pilipinas),” the credit rating agency said in its report.

It likewise said the successful implementation of President Duterte’s 10-point socioeconomic agenda, citing among them the first package of the comprehensive tax reforms, Tax Reform for Acceleration and Inclusion (TRAIN), “will help the Philippines achieve more rapid and equitable economic growth in the following years.”

In its credit rating report on the Philippines, Lianhe said the country’s strengths lie in its 1) strong and consistent economic growth, with employment continuously improving; 2) government debt ratios that are continuously improving and well covered by fiscal revenue; 3) large remittance inflows that contribute to the country’s ability to earn foreign exchange; 4) low level of external debt and the very strong capacity to repay these obligations; and 5) stable source of repayment from growing government revenues.

“The Republic of the Philippines (the “Philippines”) has a well-established institutional framework, but its governance capacity is moderate albeit improving remarkably in recent years,” Lianhe said in its report.

It pointed out that the Philippines’ unemployment and inflation are “well under control” and enjoys a sound and stable banking system despite being constrained by underdeveloped infrastructure and low GDP per capita.

Lianhe also cited the country’s strong public financing strength “underpinned by narrow fiscal deficit, low level of government debt and strong capacity to serve the debt” as well as its external financing strength characterized by “a low level of external debt well covered by ample current account revenues and foreign reserves.”

“Additionally, China Lianhe Credit Rating Co., Ltd. also factors in the strengthened economic relations between the Philippines and China as well as the stable source of payment from growing government revenues,” the report further stated.

“In conclusion, Lianhe Ratings assigned ‘AAA’ long-term issuer credit rating (national scale) to the Philippines and ‘AAA’ issue rating to Republic of the Philippines 2018 Renminbi Bonds (Series 1) (Bond Connect) (“the Bonds”); the Rating Outlook is Stable,” it said.

Lianhe also said the Philippines’ Panda bonds “have the lowest expectation of default risk.”

Lianhe’s rating was based on the Philippines’ application for registration of 1.46-billion renminbi-denominated Panda bond float with a tenor of three years and the net proceeds to be remitted outside of China to serve as part of the Philippines’ international reserves.

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