(Bloomberg) -- The Philippines is getting closer to offering prize bonds to encourage investment in a nation with among the lowest savings rate in Asia.
The short-term debt that will pay a quarterly coupon and also raffle off prizes every three months will be launched in mid-November, Treasurer Rosalia de Leon told reporters in Manila after a regular debt auction. At stake may be cash prizes of as much as 1 million pesos ($20,000), she said.
The bonds, likely to have a tenor of one year, will be offered to retail investors and cooperatives. The structure and terms are being finalized with lead arrangers Development Bank of the Philippines and Land Bank of the Philippines.
Similar debt notes were issued in the 1970’s by the Ministry of Finance, only they were in smaller denominations with no interest rate and maturity period. This time, the bonds will pay a coupon lower than market rates because the government will have to fund the prizes.
“You don’t get the full coupon but you will get the opportunity for higher earnings coming out of an investment as low as 500 pesos,” de Leon said.
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- Government will initially offer a small size to put the concept into work. Eventually, the volume will be bigger and this could become a regular instrument if this sale is successful.
- Based on the mechanics being considered, a housing unit may also be raffled off in one of the quarterly draws, and more than one will win secondary prizes that may range from 20,000 pesos to 100,000 pesos.
- With the prize bonds likely in place and government spending yet to hit full-speed, the Treasury can afford to delay the issuance of a jumbo-sized retail treasury bonds to next year, said Jun Trinidad, chief economist at Philippine National Bank.
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