Philippine Banks Mull ‘Defense Bonds’ to Fund Military Upgrades-OxBig News Network

(Bloomberg) — Philippine lenders are prepared to bankroll the Southeast Asian nation’s military modernization bid including the purchase of missile systems, fighter jets and submarines, executives said, as Manila bolsters its defense posture amid maritime clashes with China.

Defense Secretary Gilberto Teodoro Jr. has said he wants to tap the capital markets to acquire assets for the military given the government’s limited budget. While the Philippines expects a sustained $500 million in annual defense funding from Washington through 2029 to boost its military capabilities, the longtime US ally wants to widen its funding sources.

One way to do that is for a state agency, like the defense department, to issue a bond backed by the national government, said Eduardo Francisco, head of the investment banking unit of top lender BDO Unibank Inc. “It will be a very bankable transaction if it is guaranteed by the Republic of the Philippines. If they come up with defense bonds, people will buy.”

A bond deal of between 200 billion and 300 billion pesos ($3.5 billion to $5.3 billion) a year for the military’s upgrade is doable, Francisco said.

The Philippines plans to spend up to 2 trillion pesos over the next decade to modernize the country’s arsenal, as the military shifts its focus to territorial defense. Manila has announced plans to purchase its own medium-range capability missile systems and radars for deterrence as well as submarines, fighter jets and warships.

Buying the land-based Typhon missile system — which the US deployed to the Philippines during last year’s military drills — is among the options, Teodoro said in an interview earlier this month. 

The ambitious upgrade comes as Manila aims to safeguard its claims in the South China Sea, where Beijing continues to assert its expansive claims that have been rejected by an international tribunal’s 2016 ruling. Philippine and Chinese boats have repeatedly clashed in contested waters in the past year.

Teodoro, a former board director at BDO, has discussed the plan with the nation’s bankers group and he’s awaiting clearance from President Ferdinand Marcos Jr. and Finance Secretary Ralph Recto to facilitate a fundraising deal that may include foreign banks.

“We’ve told them let’s work closely together on any initiatives,” said Bankers Association of the Philippines President Jose Teodoro “TG” Limcaoco. “As long as it’s guaranteed by the republic, we have no problem.”

–With assistance from Cliff Venzon.

More stories like this are available on bloomberg.com