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Thursday, March 15, 2012

PEACe Bonds Bid Results, by Institution


This post is a follow up to a previous post "Revisiting the PEACe Bonds.", which is very long.  A shorter version can be found here.

This new post contains new information regarding the bidding results of the PEACe Bonds Auction, the first auction of zero-coupon Treasury Bonds in the Philippines and the most controversial to date.  Specifically, it contains information on the GSEDs that bid for the PEACe Bonds, how much they bid for, and at what YTMs.

Recap of PEACe Bonds Bidding

As a recap, the PEACe Bonds auction had the widest High-Low Bid Differential in history of the Philippine 10-Year Treasury Bond Auctions.  The differential of 5.752% was so wide that was ten times the historic average bid differential in the 10 Year Treasury Bond auctions from 1998 to 2001.



As a result of this differential, there was a huge gap in bond values between the highest and lowest bid:




The top winning bid was 71% higher than the bottom losing bid:





If the PEACe Bond auction bid differential had followed the historic average of only 0.422%, the top winning bid would only be 4.05% higher than the bottom losing bid:




At that rate, the gap between the top winning bid and the bottom losing bid will be imperceptible.





What the Wide High-Low Bid Differential Indicates 

The wide High-Low Bid Differentials in YTMs and the corresponding large gap in bond values assigned by the bidding GSEDs is indicative of the following:

  1. The GSEDs simply didn't know how to price the PEACe Bonds.
  2. The GSEDs colluded to give the entire issue to RCBC.


How did Individual GSEDs Bid for the PEACe Bonds?

Ten years ago, very little information was released on how the individual institutions bid for the PEACe Bonds.  In fact, this was all we had.





Based on recent data provided by government sources, that information is now available. The updated information can be seen below:



PEACe Bond Auction




Bidding Results




On October 16, 2001






















Bid # Institution # Time YTM (In %) Maturity Value Institution - Client
1 1 09:28:00 AM 14.000% 4,000,000,000.00 International Exchange Bank
2 1 09:28:00 AM 13.500% 3,000,000,000.00 International Exchange Bank
3 1 09:48:00 AM 18.000% 2,000,000,000.00 International Exchange Bank
4 1 09:48:00 AM 17.500% 1,500,000,000.00 International Exchange Bank
5 1 09:48:00 AM 17.000% 1,500,000,000.00 International Exchange Bank
6 1 09:48:00 AM 16.500% 1,000,000,000.00 International Exchange Bank
7 2 11:09:00 AM 13.000% 2,000,000,000.00 Rizal Commercial Banking Corporation
8 2 11:09:00 AM 13.118% 1,000,000,000.00 Rizal Commercial Banking Corporation
9 2 11:09:00 AM 12.368% 10,000,000,000.00 Rizal Commercial Banking Corporation
10 2 11:09:00 AM 12.488% 10,000,000,000.00 Rizal Commercial Banking Corporation
11 2 11:09:00 AM 12.785% 5,000,000,000.00 Rizal Commercial Banking Corporation
12 2 11:09:00 AM 12.248% 10,000,000,000.00 Rizal Commercial Banking Corporation
13 3 11:28:00 AM 16.375% 500,000,000.00 Banco de Oro
14 3 11:28:00 AM 16.250% 500,000,000.00 Banco de Oro - Trust
15 4 11:34:00 AM 16.750% 500,000,000.00 United Coconut Planters Bank
16 4 11:34:00 AM 17.000% 500,000,000.00 United Coconut Planters Bank
17 5 11:41:00 AM 16.500% 1,000,000,000.00 Deutsche Bank
18 5 11:41:00 AM 16.250% 1,000,000,000.00 Deutsche Bank
19 5 11:41:00 AM 15.750% 500,000,000.00 Deutsche Bank
20 5 11:41:00 AM 15.000% 500,000,000.00 Deutsche Bank
21 6 11:41:00 AM 16.000% 500,000,000.00 Citibank N.A. - Philam Life
22 6 11:41:00 AM 15.250% 500,000,000.00 Citibank N.A. - Sunlife of Canada
23 6 11:41:00 AM 15.500% 500,000,000.00 Citibank N.A. - Sunlife of Canada
24 7 11:42:00 AM 16.500% 500,000,000.00 Chinatrust
25 8 11:51:00 AM 17.500% 500,000,000.00 China Banking Corp.
26 8 11:51:00 AM 13.875% 3,750,000,000.00 China Banking Corp.
27 8 11:51:00 AM 14.250% 3,750,000,000.00 China Banking Corp.
28 8 11:51:00 AM 13.800% 500,000,000.00 China Banking Corp. - Export and Industry Bank
29 9 11:55:00 AM 13.000% 500,000,000.00 Global Bank - FMIC
30 9 11:55:00 AM 15.000% 6,100,000,000.00 Global Bank
31 9 11:55:00 AM 14.000% 1,480,000,000.00 Global Bank
32 10 11:55:00 AM 14.500% 10,000,000,000.00 Metropolitan Bank & Trust Co.
33 10 11:55:00 AM 14.000% 10,000,000,000.00 Metropolitan Bank & Trust Co.
34 10 11:55:00 AM 13.750% 8,000,000,000.00 Metropolitan Bank & Trust Co.
35 10 11:55:00 AM 13.500% 5,000,000,000.00 Metropolitan Bank & Trust Co.
36 10 11:55:00 AM 13.250% 5,000,000,000.00 Metropolitan Bank & Trust Co.
37 10 11:55:00 AM 13.000% 8,000,000,000.00 Metropolitan Bank & Trust Co.
38 11 11:57:00 AM 15.850% 900,000,000.00 ING Bank
39 12 11:57:00 AM 16.500% 5,000,000,000.00 Development Bank of the Philippines
40 13 11:59:00 AM 16.500% 3,100,000,000.00 Equitable-PCIBank
41 14 12:00:00 PM 17.125% 3,000,000,000.00 Security Bank Corp.
42 14 12:00:00 PM 16.875% 3,000,000,000.00 Security Bank Corp.
43 15 12:00:00 PM 15.125% 500,000,000.00 HSBC - Sunlife of Canada
44 15 12:00:00 PM 15.375% 500,000,000.00 HSBC - Sunlife of Canada
45 15 12:00:00 PM 15.000% 500,000,000.00 HSBC - Manulife




137,080,000,000.00

Source: Bureau of Treasury


When the bids are sorted by GSED and by bid and YTMs, you get this table (RCBC's winning bids are highlighted in yellow):

PEACe Bond Bid Results





By Institution, by Bid YTMs





October 16, 2001



















Firm Bid 1 Bid 2 Bid 3 Bid 4 Bid 5 Bid 6
IEB 14.000% 13.500% 18.000% 17.500% 17.000% 16.500%
RCBC 13.000% 13.118% 12.368% 12.488% 12.785% 12.248%
BDO 16.375% 16.250%



UCPB 16.750% 17.000%



Deutsche 16.500% 16.250% 15.750% 15.000%

Citibank 16.000% 15.250% 15.500%


Chinatrust 16.500%




China Bank 17.500% 13.875% 14.250% 13.800%

Global 13.000% 15.000% 14.000%


Metrobank 14.500% 14.000% 13.750% 13.500% 13.250% 13.000%
ING 15.850%




DBP 16.500%




Equitable 16.500%




Security 17.125% 16.875%



HSBC 15.125% 15.375% 15.000%




When the bids are sorted out by GSED, by bid, and by Maturity Value, you get this table (RCBC's winning bids are highlighted in yellow).


PEACe Bond Bids






By Institution, by Bid Maturity Value






(In PHP)






Oct 16, 2001






















FirmBid 1Bid 2Bid 3Bid 4Bid 5Bid 6Total
IEB4,000,000,0003,000,000,0002,000,000,0001,500,000,0001,500,000,0001,000,000,00013,000,000,000
RCBC2,000,000,0001,000,000,00010,000,000,00010,000,000,0005,000,000,00010,000,000,00038,000,000,000
BDO500,000,000500,000,000



1,000,000,000
UCPB500,000,000500,000,000



1,000,000,000
Deutsche1,000,000,0001,000,000,000500,000,000500,000,000

3,000,000,000
Citibank500,000,000500,000,000500,000,000


1,500,000,000
Chinatrust500,000,000




500,000,000
China Bank500,000,0003,750,000,0003,750,000,000500,000,000

8,500,000,000
Global500,000,0006,100,000,0001,480,000,000


8,080,000,000
Metrobank10,000,000,00010,000,000,0008,000,000,0005,000,000,0005,000,000,0008,000,000,00046,000,000,000
ING900,000,000




900,000,000
DBP5,000,000,000




5,000,000,000
Equitable3,100,000,000




3,100,000,000
Security3,000,000,0003,000,000,000



6,000,000,000
HSBC500,000,000500,000,000500,000,000


1,500,000,000
Total32,500,000,00029,850,000,00026,730,000,00017,500,000,00011,500,000,00019,000,000,000137,080,000,000



What we know now:

What was well known ten years ago was that RCBC won the entire issue.  They had the lowest bids in terms of YTMs.  But what was not well known, until recently, was that both Global Bank and Metrobank came very close to the winning YTM bids.  If both Global Bank and Metrobank had lowered their lowest bid YTMs by 25 basis points or 0.250% or more, they would have at least tied with RCBC's fourth winning bid and possibly have won a portion of the auction.






However, only Metrobank was RCBC's only true competitor.  Only Metrobank, aside from RCBC, bid for enough PEACe Bonds to win the entire issue of PHP 35 billion.



If we compute the bond values assigned to each bid of the participating GSEDs to a PHP 1 M Face Amount of PEACe Bonds, we get this table:


PEACe Bond Bids





PV of PHP 1M Face Amount





In PHP





Oct 16, 2001













Present Value of PHP 1 M Face Amount PEACe Bond
Firm Bid 1 Bid 2 Bid 3 Bid 4 Bid 5 Bid 6
IEB 258,419 270,796 178,431 186,816 195,616 204,853
RCBC 283,797 280,671 301,175 297,791 289,587 304,599
BDO 207,233 209,642



UCPB 200,179 195,616



Deutsche 204,853 209,642 219,575 235,413

Citibank 214,548 230,005 224,727


Chinatrust 204,853




China Bank 186,816 261,457 252,455 263,297

Global 283,797 235,413 258,419


Metrobank 246,635 258,419 264,532 270,796 277,217 283,797
ING 217,550




DBP 204,853




Equitable 204,853




Security 193,376 197,884



HSBC 232,692 227,350 235,413





Wide Dispersion of Bond Values, even within the individual GSED bids

What is also well known was that the different GSEDs assigned widely divergent values to the PEACe Bonds.  RCBC, of course, being the winning bidder, assigned the highest bond values to the PEACe Bonds.   And again, both Global Bank and Metrobank assigned the second highest bond values to the bonds.  International Exchange Bank assigned the lowest bond value to the PEACe Bonds.  Most of the other GSEDs' bids came at PHP 210,000 per PHP 1 M Face Amount PEACe Bond, around PHP 70,000 less than PHP 290,000 per PHP 1 M Face Amount PEACE Bond - the winning cut-off mark.




As can be seen from the above column chart, the values assigned by GSED to the PEACe Bonds were widely divergent, even within the GSED.  A tabulation of these bid differentials within the participating GSEDs is as follows:


PEACe Bond Bids




PV of PHP 1M Face Amount




In PHP




Oct 16, 2001

















Present Value of PHP 1 M Face Amount PEACe Bond
Firm Average Min Max Bid Differential % Bid Differential
IEB 215,822 178,431 270,796 92,365 51.77%
RCBC 292,937 280,671 304,599 23,928 8.53%
BDO 208,438 207,233 209,642 2,409 1.16%
UCPB 197,898 195,616 200,179 4,563 2.33%
Deutsche 217,371 204,853 235,413 30,560 14.92%
Citibank 223,093 214,548 230,005 15,457 7.20%
Chinatrust 204,853 204,853 204,853 0 0.00%
China Bank 241,006 186,816 263,297 76,481 40.94%
Global 259,210 235,413 283,797 48,384 20.55%
Metrobank 266,899 246,635 283,797 37,162 15.07%
ING 217,550 217,550 217,550 0 0.00%
DBP 204,853 204,853 204,853 0 0.00%
Equitable 204,853 204,853 204,853 0 0.00%
Security 195,630 193,376 197,884 4,508 2.33%
HSBC 231,818 227,350 235,413 8,063 3.55%
Total 225,482 213,537 236,462 22,925 10.74%



For instance, International Exchange Bank submitted the lowest bid value, at PHP 178,431 per PHP 1 M Face Amount.  But its highest bid was fairly close to the cut-off of PHP 290,000 per PHP 1 M Face Amount.  As a result, the difference between its highest and lowest bid amounted to PHP 92,365.  In other words, its highest bid was 51.77% higher than its lowest bid, a very wide range by any standard.

Next in line is China Bank.  Its lowest bid was PHP 186,816 per PHP 1 M Face Amount but its highest bid was PHP 263,297 per PHP 1 M Face Amount for a bid differential of PHP 76,481 per PHP 1 M Face Amount.  This amounts to 40.94% of the lowest bid.

Even Global Bank had high bid differentials.  Its highest bid was PHP 283,797 or 20.55% higher than its lowest bid of PHP 235,413.

Metrobank came in fourth,with its highest bid 15.07% higher than its lowest bid.  Still, this amounted to as much as PHP 37,162 per PHP 1 M Face Amount.

Of the firms that submitted four or more bids for the PEACe Bonds, RCBC had the narrowest range, with the highest bid only 8.53% higher than its lowest bid.

The wide dispersion of bond values assigned by a GSED to a PEACE Bond  is reflected in dispersion of the YTMs of the bids.  For instance, the bid differential of International Exchange Bank's bids is 4.500% or more than ten times the historic bid differential of 0.422% (high-low bid differential of 10 Year Philippine Treasury Bond Auctions from 1998 to 2001).


PEACe Bond Bids





By Institution, by Bid YTM





October 16, 2001

























Bid Differential/
Firm Average YTM Min YTM Max YTM Bid Differential Historic Bid Differential Historic Bid Differential
IEB 16.083% 13.500% 18.000% 4.500% 0.422% 10.66
RCBC 12.668% 12.248% 13.118% 0.870% 0.422% 2.06
BDO 16.313% 16.250% 16.250% 0.000% 0.422% 0.00
UCPB 16.875% 17.000% 17.000% 0.000% 0.422% 0.00
Deutsche 15.875% 15.000% 16.250% 1.250% 0.422% 2.96
Citibank 15.583% 15.250% 15.500% 0.250% 0.422% 0.59
Chinatrust 16.500% 0.000% 0.000% 0.000% 0.422% 0.00
China Bank 14.856% 13.800% 14.250% 0.450% 0.422% 1.07
Global 14.000% 14.000% 15.000% 1.000% 0.422% 2.37
Metrobank 13.667% 13.000% 14.000% 1.000% 0.422% 2.37
ING 15.850% 0.000% 0.000% 0.000% 0.422% 0.00
DBP 16.500% 0.000% 0.000% 0.000% 0.422% 0.00
Equitable 16.500% 0.000% 0.000% 0.000% 0.422% 0.00
Security 17.000% 16.875% 16.875% 0.000% 0.422% 0.00
HSBC 15.167% 15.000% 15.375% 0.375% 0.422% 0.89



Conclusion:

The wide dispersion of bid YTMs and the resulting wide dispersion in bond values assigned by a participating GSED to the PEACe Bonds is indicative of a "shotgun" approach to bidding.  This indicates that some individual GSEDs, namely International Exchange Bank, China Bank, and Global Bank, didn't know precisely how to value the PEACe Bonds and as a result, cast a very wide net hoping to snare some PEACe Bonds.

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