Philippines to issue 25-year RTBs

James Ryan Jonas

The Philippines will again issue to the public retail treasury bonds or RTBs as a way of raising funds. The good thing with this debt instrument is that individual investors may have the opportunity to avail of this product because RTBs are sold in retail and do not require huge cash outlay.

In fact, minimum investment is only P5,000 (US$120), with additional investments also in multiples of P5,000 — making RTBs more accessible to the average Filipino investor.

What are RTBs?

We have already lengthily discussed RTBs in How to invest in Retail Treasury Bonds (RTB) but to recap, RTBs are direct, unconditional and general obligations of the Philippine government issued by the Bureau of Treasury (hence the name). As such, they are generally considered safe and virtually risk-free. The current offering, RTB Tranche 16, has a maturity of 25 years. Interest is fixed and paid quarterly.

How do I compute income from RTBs?

You may refer to our article How to invest in Retail Treasury Bonds (RTB) for a sample computation of interest earnings in RTBs.

RTB Tranche 16 Terms of Offering

Here are some basic details about the recent RTB offering.

  • Public Offer Period: October 9-22, 2012
  • Issue Date: October 24, 2012
  • Interest Rate: 6.125% p.a.
  • Interest Payments: Paid quarterly
  • Maturity Date: 25 years from date of issue (Due 2037)
  • Negotiability: Negotiable and transferrable

How to purchase RTBs?

The RTBs will be offered to the public during the Public Offering Period on October 9-22, 2012. Here are the basic steps to avail of the RTBs.

  • 1. Open or designate a peso account with the Selling Agent where interest and principal payments will be made.
  • 2. Submit to the Selling Agent the requirements for investing in RTBs (i.e., Application to Purchase, Client Information Sheet, etc.)
  • 3. Pay the Selling Agent the corresponding investment amount.
  • 4. Receive from the Selling Agent a payment acknowledgment or official receipt.
  • 5. A few days after the issue date, receive from the Selling Agent a Confirmation Advice. No certificates will be issued as proof of ownership because the RTBs are scripless securities, that is, registered in electronic form with RoSS (Registry of Scripless Securities).

Who are the Selling Agents that will offer RTBs?

Most local banks have RTBs available to the public. However, due to limited supply and the banks’ decision to reduce transaction cost, RTBs are usually offered first to institutional investors and high-networth clients. But interested investors may still approach Landbank of the Philippines (LBP) and the Development Bank of the Philippines (DBP), the joint issue managers of the RTB offering. Other co-issue managers include BDO Capital, China Bank, First Metro Investment Corp., Metrobank, PNB Capital, RCBC, Citibank, and Deustche Bank.

What are the risks involved in RTB investing?

RTBs are one of the investment instruments with the lowest credit risk because they represent the direct and unconditional obligation of the government, thereby ensuring high certainty of payment. The yield is assured if the investor holds on to the bond until maturity, otherwise it will be subject to interest rate risk depending on the prevailing market rate at the time it is sold in the secondary market.

Can the investor sell his RTB prior to maturity?

RTBs are marketable securities, which means investors can ask the Selling Agents to help them sell their RTBs, on a best efforts basis, at prevailing rates in the secondary market.

Do I need to pay taxes for my RTB earnings?

Yes, but taxes will be automatically deducted from the earnings when they are paid to you. Interest income on RTBs is charged a 20% final withholding tax. Only tax-exempt institutions, duly-accredited and certified as such by the Bureau of Internal Revenue, are exempt from the payment of the 20% withholding tax.

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.