Filed Pursuant to Rule 424(b)(5)
Registration No. 333-114312
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 15, 2004
[REPUBLIC OF THE PHILIPPINES LOGO]
US$250,000,000
REPUBLIC OF THE PHILIPPINES
9.375% GLOBAL BONDS DUE 2017
----------------------
Except for the first payment of interest, the Republic will pay interest on the
global bonds each January 18 and July 18. The first interest payment will be
made on July 19, 2004 for interest that accrues from the date the global bonds
are delivered to investors (expected to be on or about July 7, 2004) through but
excluding July 18, 2004. On July 20, 2004, the global bonds will be consolidated
with, form a single series with, and be made fungible with the $750,000,000
9.375% Global Bonds due 2017 issued by the Republic on January 18, 2002. Once
consolidated, the total principal amount of the previously issued global bonds
and the global bonds now being issued will be $1,000,000,000. The Republic may
not redeem the global bonds prior to maturity. Holders of the global bonds may
require the Republic to purchase the global bonds at par on January 18, 2012.
The offering of the global bonds is conditional on the receipt of certain
approvals of the Monetary Board of the Bangko Sentral ng Pilipinas, the central
bank of the Republic.
Application has been made to list the global bonds on the Luxembourg Stock
Exchange. The global bonds will be listed on the basis of this prospectus
supplement, which will be filed with the Luxembourg Stock Exchange and will be
made available at the office of the Luxembourg paying and transfer agent.
----------------------
<Table>
<Caption>
PER BOND TOTAL
-------- --------------
Price to investors...................................... 100.25% US$250,625,000
Underwriting discounts and commissions.................. 0.15% US$ 375,000
Proceeds, before expenses, to the Republic.............. 100.10% US$250,250,000
</Table>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We expect to deliver the global bonds to investors in registered book-entry form
only through the facilities of The Depository Trust Company, Clearstream
Banking, societe anonyme, and Euroclear Bank, S.A./N.V., as operator of the
Euroclear System, on or about July 7, 2004.
----------------------
Sole Lead Manager and Bookrunner
(JPMorgan LOGO)
----------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 29, 2004.
[MAP]
TABLE OF CONTENTS
<Table>
<Caption>
PROSPECTUS SUPPLEMENT PAGES
- ------------------------------------- -----
INTRODUCTORY STATEMENTS.............. S-3
SUMMARY OF THE OFFERING.............. S-5
USE OF PROCEEDS...................... S-8
RECENT DEVELOPMENTS.................. S-9
DESCRIPTION OF THE GLOBAL BONDS...... S-16
GLOBAL CLEARANCE AND SETTLEMENT...... S-19
TAXATION............................. S-22
UNDERWRITING......................... S-24
LEGAL MATTERS........................ S-27
GENERAL INFORMATION.................. S-27
</Table>
<Table>
<Caption>
PROSPECTUS PAGES
- ------------------------------------- -----
CERTAIN DEFINED TERMS AND
CONVENTIONS........................ 2
FORWARD LOOKING STATEMENTS........... 2
DATA DISSEMINATION................... 3
USE OF PROCEEDS...................... 3
PROSPECTUS SUMMARY................... 4
REPUBLIC OF THE PHILIPPINES.......... 9
DESCRIPTION OF THE SECURITIES........ 85
COLLECTIVE ACTION SECURITIES......... 96
TAXATION............................. 100
PLAN OF DISTRIBUTION................. 108
VALIDITY OF THE SECURITIES........... 109
AUTHORIZED REPRESENTATIVE IN THE
UNITED STATES...................... 109
EXPERTS; OFFICIAL STATEMENTS AND
DOCUMENTS.......................... 109
FURTHER INFORMATION.................. 109
DEBT TABLES OF THE REPUBLIC OF THE
PHILIPPINES........................ T-1
</Table>
------------------------
YOU SHOULD READ THIS PROSPECTUS SUPPLEMENT ALONG WITH THE ATTACHED
PROSPECTUS THAT ACCOMPANIES IT. YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS DOCUMENT AND THE ACCOMPANYING
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS MAY
BE ACCURATE ONLY ON THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AS
APPLICABLE. TERMS USED HEREIN BUT NOT OTHERWISE DEFINED SHALL HAVE THE MEANING
GIVEN TO THEM IN THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT.
------------------------
INTRODUCTORY STATEMENTS
The Republic accepts responsibility for the information provided by it that
is contained in this prospectus supplement and the prospectus that accompanies
it. To the best of the knowledge and belief of the Republic (which has taken all
reasonable care to ensure that such is the case), the information contained in
this prospectus supplement and the accompanying prospectus provided by the
Republic is in accordance with the facts and does not omit anything likely to
affect the import of such information.
The Republic is a foreign sovereign state. Consequently, it may be
difficult for you to obtain or realize upon judgments of courts in the United
States against the Republic. See "Description of the Securities -- Description
of the Debt Securities -- Jurisdiction and Enforceability" in the accompanying
prospectus.
The distribution of this prospectus supplement and the accompanying
prospectus and the offering of the global bonds may be legally restricted in
some countries. If you wish to distribute this prospectus supplement or the
accompanying prospectus, you should observe any applicable restrictions. This
prospectus supplement and the accompanying prospectus should not be considered
an offer, and it is prohibited to use them to make an offer, in any state or
country in which the making of this offering of the bonds is prohibited. For a
description of some restrictions on the offering and sale of the global bonds
and the distribution of this prospectus supplement and the accompanying
prospectus, see "Underwriting" on page S-24.
Unless otherwise indicated, all references in this prospectus supplement to
"Philippine pesos", "pesos" or "P" are to the lawful national currency of the
Philippines, those to "dollars", "US dollars" or "$" are to the
S-3
lawful currency of the United States of America and those to "SDR" are to
Special Drawing Rights of the International Monetary Fund.
All references in this prospectus supplement to (a) the "Republic" or the
"Philippines" are to the Republic of the Philippines, (b) the "Government" are
to the national government of the Philippines, (c) the "administration" are to
the current administration of President Gloria Macapagal-Arroyo and (d) "Bangko
Sentral" are to Bangko Sentral ng Pilipinas, the central bank of the
Philippines.
S-4
SUMMARY OF THE OFFERING
This summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
prospectus supplement and the accompanying prospectus to which it relates.
ISSUER........................ Republic of the Philippines.
BONDS......................... $250,000,000 aggregate principal amount of
9.375% global bonds due 2017. On July 20, 2004,
the global bonds will be consolidated with,
form a single series with and be fungible with
the 9.375% Global Bonds due 2017 issued by the
Republic on January 18, 2002, in the amount of
$750,000,000 (the "Existing Bonds"). Upon
consolidation, the global bonds will rank pari
passu with the Existing Bonds in all respects.
The total principal amount of the Existing
Bonds and the global bonds now being issued
will be $1,000,000,000.
INTEREST...................... The global bonds will bear interest at 9.375%
per year from the date the global bonds are
delivered to investors (expected to be on or
about July 7, 2004).
INTEREST PAYMENT DATES........ The first interest payment will be made on July
19, 2004, payable to persons who are registered
holders of the global bonds at the close of
business on the date the global bonds are
delivered to investors (expected to be on or
about July 7, 2004); and thereafter January 18
and July 18 of each year, commencing January
18, 2005, payable to the persons who are
registered holders thereof at the close of
business on the preceding January 1 or July 1,
as applicable, whether or not a business day.
OPTIONAL HOLDER REDEMPTION.... Each holder of the global bonds may require the
Republic to purchase that holder's global bonds
at par on January 18, 2012.
ISSUER REDEMPTION............. The Republic may not redeem the global bonds
prior to maturity.
STATUS OF BONDS............... The global bonds will be direct, unconditional,
unsecured and general obligations of the
Republic. Except as otherwise described, the
global bonds will at all times rank at least
equally among themselves and with all other
unsecured and unsubordinated External
Indebtedness (as defined in the accompanying
prospectus) of the Republic. The full faith and
credit of the Republic will be pledged for the
due and punctual payment of all principal and
interest on the global bonds. See "Description
of the Securities -- Description of Debt
Securities -- Status of Bonds" in the
accompanying prospectus.
NEGATIVE PLEDGE............... With certain exceptions, the Republic has
agreed that it will not create or permit to
subsist any Lien (as defined in the
accompanying prospectus) on its revenues or
assets to secure External Public Indebtedness
(as defined in the accompanying prospectus) of
the Republic, unless at the same time or prior
thereto, the global bonds are secured at least
equally and ratably with such External Public
Indebtedness. The international reserves of
Bangko Sentral ng Pilipinas ("Bangko Sentral")
represent substantially all of the official
gross international reserves of the Republic.
Because Bangko Sentral is an independent
entity, the Republic and Bangko
S-5
Sentral believe that the international reserves
owned by Bangko Sentral are not subject to the
negative pledge covenant in the global bonds
and that Bangko Sentral could in the future
incur External Public Indebtedness secured by
such reserves without securing amounts payable
under the global bonds. See "Description of the
Securities -- Description of the Debt
Securities -- Negative Pledge Covenant" in the
accompanying prospectus.
TAXATION...................... The Republic will make all payments of
principal and interest in respect of the global
bonds free and clear of, and without
withholding or deducting, any present or future
taxes of any nature imposed by or within the
Republic, unless required by law. In that
event, the Republic will pay additional amounts
so that the holders of the global bonds receive
the amounts that would have been received by
them had no withholding or deduction been
required. See "Description of the
Securities -- Description of the Debt
Securities -- Additional Amounts" in the
accompanying prospectus. For a description of
certain United States tax aspects of the global
bonds, see "Taxation -- United States Tax
Considerations" in the accompanying prospectus,
and "Taxation -- United States Taxation".
CROSS-DEFAULTS................ Events of default with respect to the global
bonds include (i) if the Republic fails to make
a payment of principal, premium, prepayment
charge or interest when due on any External
Public Indebtedness with a principal amount
equal to or greater than $25,000,000 or its
equivalent, and this failure continues beyond
the applicable grace period; or (ii) if any
External Public Indebtedness of the Republic or
the central monetary authority in principal
amount equal to or greater than $25,000,000 is
accelerated, other than by optional or
mandatory prepayment or redemption. See
"Description of the Securities -- Description
of the Debt Securities -- Events of
Default -- Cross Default and Cross
Acceleration" in the accompanying prospectus.
LISTING....................... The Republic is offering the global bonds for
sale in the United States and elsewhere where
such offer and sale is permitted. The Republic
has applied to have the global bonds listed and
traded in accordance with the rules of the
Luxembourg Stock Exchange. The Republic cannot
guarantee that the application to the
Luxembourg Stock Exchange will be approved, and
settlement of the global bonds is not
conditioned on obtaining the listing.
FORM, DENOMINATION AND
REGISTRATION.................. The global bonds will be issued in fully
registered form in denominations of $1,000 and
integral multiples thereof. The global bonds
will initially be represented by one or more
temporary global securities registered in the
name of a depositary, its nominee or a
custodian. Beneficial interests in the
temporary global securities will be shown on,
and the transfer thereof will be effected only
through, records maintained by the depositary
and its direct and indirect participants. Upon
consolidation with the Existing Bonds, the
global bonds will be represented by one or more
permanent global securities registered in the
name of a depositary, its nominee or custodian.
Beneficial interests in the global securities
will be
S-6
shown on, and the transfer thereof will be
effected only through, records maintained by
the depositary and its direct and indirect
participants. Settlement of all secondary
market trading activity in the global bonds
will be made in immediately available funds.
See "Description of the
Securities -- Description of the Debt
Securities -- Global Securities" in the
accompanying prospectus.
FURTHER ISSUES................ The Republic may from time to time, without
notice to or the consent of the registered
holders of global bonds, issue further bonds
which will form a single series with the global
bonds. See "Description of the
Securities -- Description of the Debt
Securities -- Further Issues of Debt
Securities" in the accompanying prospectus.
USE OF PROCEEDS............... The Republic intends to use the net proceeds
from the sale of the global bonds to provide
capital to National Power Corporation for its
use in meeting its financing requirements.
FISCAL AGENT.................. JPMorgan Chase Bank.
GOVERNING LAW................. The fiscal agency agreement and the global
bonds will be governed by and interpreted in
accordance with the laws of the State of New
York. The laws of the Republic will govern all
matters governing authorization and execution
of the global bonds by the Republic.
S-7
USE OF PROCEEDS
The Republic intends to use the net proceeds of $250,250,000 from the sale
of the global bonds primarily to provide capital to National Power Corporation
for its use in meeting its financing requirements.
S-8
RECENT DEVELOPMENTS
The information in this section supplements the information about the
Republic that is included in the accompanying prospectus dated April 15, 2004.
RECENT POLITICAL DEVELOPMENTS
RECENT NATIONAL ELECTION RESULTS
On May 10, 2004, national elections were held for the positions of
President, Vice President, twelve Senators, more than 200 Representatives and
all local government posts (excluding Barangay officials). On June 24, 2004,
pursuant to the Constitution, the joint session of Congress declared Gloria
Macapagal-Arroyo and Noli de Castro as President-elect and Vice President-elect,
respectively. They will begin their six-year terms at noon on June 30, 2004.
Both Mrs. Arroyo and Mr. de Castro are members of the ruling Lakas-CMD
coalition. Early indications show that the ruling coalition will continue to
hold a majority in both the Senate and the House of Representatives when the new
Congress convenes on July 26, 2004. Certain opposition candidates including
defeated presidential candidate Fernando Poe, Jr. are questioning the election
results, alleging massive fraud and disenfranchisement of voters. It has been
reported that they are planning street demonstrations and are also considering
filing an election contest with the Presidential Electoral Tribunal.
ARROYO ADMINISTRATION POLICY
On June 28, 2004, President Arroyo announced a ten-point agenda of policy
priorities for her new six-year term in office. The President's agenda includes
the following goals:
- creating six million jobs in six years through increased support for
entrepreneurs, increased lending to small and medium enterprises and the
development of one to two million hectares of land for agriculture;
- improving education through the construction of new classrooms, the
provision of books and supplies for students and scholarships to poor
families;
- balancing the Government budget;
- spreading the benefits of economic growth through expanded transportation
networks and digital infrastructure;
- providing electricity and water to local communities across the country;
- alleviating congestion in Metro Manila by establishing new government and
housing centers in other regions;
- developing the Clark Special Economic Zone and the Subic Bay Freeport
Area as international service and logistics centers;
- automating the electoral process;
- completing the peace process with rebel groups in the Philippines; and
- promoting reconciliation among opposing political movements.
Concurrently with President Arroyo's 10-point agenda, the National Economic
and Development Authority ("NEDA") announced new measures intended to sustain
economic expansion in the Philippines. The specific initiatives announced by
NEDA include:
- promoting tourism;
- increasing loans for small and medium-size enterprises from P10 billion
to P30 billion under its Unified Lending Opportunities for National
Growth program;
S-9
- moderating prices of food and transport services in order to control wage
levels;
- improving the efficiency of logistics in the Philippines;
- increasing investments in infrastructure through project-based financing
and the establishment of fund infrastructure corporations; and
- increasing funding for health, education and poverty-reduction programs
in Mindanao.
INTERNAL CONFLICT WITH REBEL GROUPS
The Government and the National Democratic Front ("NDF") held a round of
peace negotiations in Oslo, Norway from June 22-24, 2004. The Government and the
NDF reaffirmed their intention to continue the peace process and are planning
further talks for August 2004. Fighting has continued between the NDF and
Government forces, however, resulting in more than 100 casualties on each side
during the first half of 2004.
Peace negotiations between the Government and the Moro Islamic Liberation
Front ("MILF"), which were originally planned for the first half of 2004, are
expected to resume in August 2004 in Malaysia. A joint cease-fire declaration
between the Government and the MILF which was signed on July 19, 2003 remains in
effect.
RECENT ECONOMIC DEVELOPMENTS
RECENT ECONOMIC INDICATORS
The following table sets out the performance of certain of the Republic's
principal economic indicators for the periods indicated.
<Table>
<Caption>
2002 2003 2004(1)
---- ---- -------
Real GDP growth (%)......................................... 4.3 4.7 6.4(2)
Real GNP growth (%)......................................... 4.3 5.6 6.2(2)
Inflation rate (%).......................................... 2.9(3)(4) 3.0(3)(4) 3.8(5)
Unemployment rate (%)....................................... 11.4(6) 11.4(6) 13.7(7)
91-day T-bill rate (%)...................................... 5.9(3) 6.0(3) 6.9(8)
External position
Balance of payments ($ million)........................... 663 111 (379)(2)
Trade-in-goods balance(9)/GNP (%)......................... 0.8 0.1 (1.8)(2)
External debt ($ billion)................................. 53.6 57.4 56.7(10)
International reserves
Gross ($ billion)...................................... 16.2(11) 16.9(11) 16.5(12)
Net ($ billion)........................................ 12.8(11) 13.9(11) 14.2(12)
Months of retained imports(13)......................... 4.7(11) 4.7(11) 4.5(12)
Domestic credit growth (M3)(%).............................. 0.9 4.8 6.4(14)
</Table>
- ---------------
(1) Some 2004 data is preliminary.
(2) First three months of 2004.
(3) Full year average.
(4) Based on the 1994 CPI basket.
(5) Average of first five months of 2004 based on the 1994 CPI basket.
(6) Average of the January, April, July and October applicable statistics based
on the January, April, July and October labor force surveys for the relevant
year.
(7) In April 2004.
(8) Average of first five months of 2004.
(9) Represents goods trade as reported by Bangko Sentral.
S-10
(10) As of March 31, 2004.
(11) As of December 31 of the relevant year.
(12) As of May 31, 2004.
(13) Number of months of average imports of merchandise goods and payment of
services and income that can be financed by gross reserves.
(14) Year-on-year for April 2004.
GNP/GDP
For the three months ended March 31, 2004, GNP grew by 6.2% and GDP grew by
6.4% compared to 4.6% and 4.8% growth in GNP and GDP, respectively, for the
three months ended March 31, 2003 (at constant 1985 prices).
Agriculture, Fishery and Forestry
The agriculture, fishery and forestry sector grew by 7.7% in the first
quarter of 2004 compared to 3.3% in the first quarter of 2003. The main
contributor to growth from agriculture was rice production, which grew by 13.1%
in the first quarter of 2004 compared to a 0.7% decline in the first quarter of
2003. This growth was largely due to expansion in harvest area and to higher
yield per area as a result of the intensive use of certified seeds, adequate
irrigation and favorable weather conditions. The fishery subsector grew by
19.5%, compared to growth of 0.4% in the first quarter of 2003, due to improved
aquaculture and favorable weather conditions. The forestry subsector grew by
96.2% in the first quarter of 2004 compared to a 10.7% decline in the first
quarter of 2003.
Industry
The industry sector grew by 5.5% in the first quarter of 2004, compared to
4.8% in the first quarter of 2003. The mining and quarrying subsector grew 21.0%
in 2004, compared to 13.9% growth in the first quarter of 2003 due to increased
output of oil and metals. Growth in the manufacturing sector decelerated to 4.3%
in the first quarter of 2004 from 5.3% in the first quarter of 2003. The basic
metal industries posted a slowdown of growth from 93.0% in the first quarter of
2003 to 18.4% in the first quarter of 2004. The decrease in growth in the metal
industry subsector was offset partially by growth in other manufacturing
subsectors such as the food, machinery, chemicals and beverages. Construction
grew by 6.5% in the first quarter of 2004 compared to marginal growth of 0.3% in
the first quarter of 2003, reflecting increased growth in both private and
public construction. Electricity and water grew by 5.4% in the first quarter of
2004 compared to 2.9% in the first quarter of 2003 due to an increase in sales
of electricity to major customers during the period and a significant expansion
in the service area for water supply.
Services
The services sector grew 6.4% in the first quarter of 2004, compared to
5.5% in the first quarter of 2003. The transportation, communication and storage
subsector grew by 9.3% in the first quarter of 2004 compared to 8.6% in the
first quarter of 2003 as mobile phone services became more available and
affordable to a larger base of customers and air transport rebounded from a
contraction of 5.2% for the first quarter of 2003 to growth of 17.8% for the
first quarter of 2004 due to an increase in passenger and cargo movement. These
developments more than offset a decrease in water transport from growth of 5.9%
last year to a contraction of 4.5% during the first quarter of 2004. The trade
subsector grew by 6.9% in the first quarter of 2004 compared to 5.5% in the
first quarter of 2003 due to an increase in retail trade as indicated by higher
revenues from malls and supermarkets and an increase in wholesale trade in
petroleum products, processed food and pharmaceutical products. The finance
subsector grew by 6.9% in the first quarter of 2004 compared to growth of 5.5%
in the first quarter of 2003 due to increased growth in the banking and
non-banking services subsectors which more than offset decelerated growth in the
insurance subsector. The dwellings and real estate subsector grew by 3.6% in the
first quarter of 2004 compared to 3.2% during the first quarter of 2003. Growth
in this subsector was due to a shift to more mass and mid-segment housing
projects, improved sales of residential properties, stable income from rental
and leasing operations and stable growth in home ownership. The private services
S-11
subsector grew by 6.6% in the first quarter of 2004 compared to growth of 5.4%
in the first quarter of 2003. Main contributors to growth were personal
services, medical and health services, recreational services (which included
broadcast media benefitting from election-related political advertisements) and
business services. The government services subsector grew by 2.6% in the first
quarter of 2004, due in part to preparations for the national elections,
compared to a contraction of 2.8% in the first quarter of 2003.
Income from Abroad
Net factor income from abroad, which is a component of GNP but not included
in GDP, grew 3.3% for the three months of 2004 compared to 3.0% for the three
months of 2003. The increased growth in income from abroad reflected increased
growth in the number of Filipinos employed abroad.
INFLATION
For the first five months of 2004, inflation measured using the 1994 CPI
basket averaged 3.8% and inflation measured using the 2000 CPI basket averaged
4.1%. Based on the 1994 CPI basket, inflation was 4.5% for the month of May 2004
compared to 4.1% in April 2004; based on the 2000 CPI basket, inflation was 4.7%
for the month of May 2004 compared to 4.2% in April 2004. Recent increases in
inflation rates can be traced largely to increases in the prices of selected
food items, particularly of meat and fish since the outbreak of avian flu in
Asia, and to higher prices for oil, which is an input in the production of most
goods and services.
EMPLOYMENT
The unemployment rate increased to 13.7% in April 2004 from 12.2% in April
2003 as job growth failed to keep pace with growth in the labor force. Total
employment increased by 1.1 million jobs from April 2003 to April 2004, while
1.9 million people entered the labor force and the labor force participation
rate rose from 67.1% to 68.9% of the population 15 years old and over. The
unemployment rate for Metro Manila in April 2004 was 18.8%, the highest in the
country.
BALANCE OF PAYMENTS
The Republic's balance of payments recorded a deficit of $379 million for
the first three months of 2004, compared to the $510 million deficit in the
first quarter of 2003. A surplus of $824 million in the current account, more
than twice the surplus recorded for the first quarter of 2003, was offset by a
deficit of $476 million in the capital and financial account and a deficit of
$727 million in unclassified items. "Net unclassified items" comprise errors and
omissions due to timing differences between inflows and outflows,
double-counting and insufficient reporting of data.
Current Account
The current account recorded a surplus of $824 million in the first quarter
of 2004, more than twice the $370 million surplus for the first quarter in 2003.
The increase in the surplus was attributed to the smaller deficit in both the
trade-in-goods and trade-in-services accounts and the increase in net income
flows.
Trade-in-goods. The deficit in the trade-in-goods account, as reported by
Bangko Sentral, declined to $378 million in the first quarter of 2004 from $441
million in the first quarter of 2003, with exports expanding faster than
imports. Exports of goods increased by 5.7% to reach $8.9 billion while imports
of goods rose 4.7% to $9.3 billion. The rise in exports of goods was attributed
mainly to the continued recovery in shipments of electronics and sustained sales
of machinery and transport equipment, the country's leading exports. Other
export commodities contributing to the growth in exports were non-metallic
mineral manufactures, fruits and vegetables, sugar products and other agro-based
products. Imports in the first quarter grew 4.7% due to higher shipments of
electronics and machinery and transport equipment.
In the first four months of 2004, merchandise exports (as reported by the
National Statistics Office) increased by 6.9% to $12.2 billion compared to $11.4
billion in the first four months of 2003. This increase was
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primarily due to a 5.6% increase in exports of electronic products, which
accounted for 66.7% of total exports for the first four months of 2004.
In the first four months of 2004, imports (as reported by the National
Statistics Office) grew by 6.9% to $13.2 billion compared to $12.3 billion for
the first four months of 2003. This increase resulted primarily from imports of
electronics products, which grew by 9.9% to $6.1 billion in the first four
months of 2004 compared to $5.5 billion for the first four months of 2003.
Trade-in-services. The trade-in-services account reported a deficit of
$143 million in the first quarter of 2004 compared to the $421 million deficit
in the same period of 2003. The decreased deficit was largely attributed to
higher receipts from travel and communication services. Net inflows from travel
in the third quarter of 2003 grew 123.5% from the first quarter of 2003 to the
first quarter of 2004. New inflows from communication services grew to $121
million in the first quarter of 2004 from $33 million in the same period last
year. Growth in communication services inflows was attributed to the entry of a
major call center company in the Philippines.
Income. The income account recorded a surplus of $1.2 billion in the first
quarter of 2004, compared to a surplus of $1.1 billion in the first quarter of
2003. Increased deployment of both land-based and sea-based overseas Filipino
workers ("OFWs") caused OFW remittances to increase by 4.2% year-on-year to $1.9
billion in the first quarter of 2004. Increases in OFW remittances more than
offset the rise in interest payments on bonds and notes by the Government and
private corporations.
Capital and Financial Account
The net outflow in the capital and financial account was $476 million in
the first quarter of 2004, reflecting an increase of 30.4% from the net outflow
of $365 million in the same period in 2003. The increased net outflow in the
capital and financial account during the first quarter of 2004 was attributed to
a significant decline in the portfolio investment account and a smaller decline
in the direct investment account, which were tempered by a decrease in outflows
in the other investment account.
Direct Investments. The direct investment account recorded a net outflow
of $36 million in the first quarter of 2004, a reversal of the $37 million net
inflow in the first quarter of 2003. This was attributed mainly to the sale of a
stake in a large food manufacturing company by a non-resident to a resident
firm, which more than offset the increase in new placements in equity capital.
Portfolio Investments. The portfolio investment account recorded net
inflows of $7 million during the first three months of 2004 compared to the $417
million net inflow in the first quarter in 2003. The decrease in net inflows was
attributed to bond repayments by private corporations, which offset increased
non-resident investments in the equities market and debt issuances of the
Government and government-owned-and-controlled corporations.
Other Investments. The net outflow in the other investment account for the
first quarter of 2004 was $443 million compared to $822 million in the first
quarter of 2003. The decrease in outflows in the other investments account was
due largely to the inflows from local banks' short-term foreign loans and
inter-bank borrowings as well as short-term private-sector loans to pay for
imports.
According to preliminary data, the balance of payments for the first five
months of 2004 showed a surplus of $475 million, compared to a deficit of $528
million for the first five months of 2003.
INTERNATIONAL RESERVES
Bangko Sentral's gross international reserves stood at $16.5 billion as of
May 31, 2004, compared to $16.4 billion as of April 30, 2004 and $16.3 billion
as March 31, 2004. Gross international reserves as of May 31, 2004 were adequate
to cover 4.5 months of imports of goods and payments of services and income, and
were equivalent to 2.9 times the Republic's short-term debt based on original
maturity and 1.5 times based on residual maturity. The increase in reserves from
April 2004 to May 2004 was attributed to recent
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bond issuances by the Government and by National Power Corporation. However,
these inflows were partly offset by disbursements to pay for the debt service
requirements of both the Government and Bangko Sentral.
Bangko Sentral's net international reserves rose to $14.2 billion as of May
31, 2004 from $14.0 billion as of April 30, 2004 and $13.6 billion as of March
31, 2004.
PESO/US$ EXCHANGE RATE
On June 29, 2004, the peso to US dollar exchange rate was P56.20 per US
dollar, compared to P56.18 per US dollar as of April 13, 2004.
PHILIPPINE SECURITIES MARKETS
As of June 29, 2004, the Philippine Stock Exchange composite index closed
at 1586.35, compared to a close of 1516.81 on April 6, 2004 and 1442.37 on
December 30, 2003.
MONEY SUPPLY
The Republic's money supply as at April 30, 2004 was P1.7 trillion,
representing year-on-year growth of 6.4%. The increase was attributed to an
increase in net foreign assets caused mainly by the increase in investments by
commercial banks and by Bangko Sentral in foreign currency-denominated
securities and an increase in net domestic credits due primarily to public
borrowings.
BANKING SYSTEM NON-PERFORMING LOANS
The banking system's non-performing loan ratio declined to 13.6% at the end
of April 2004 from 15.5% at the end of April 2003. The decline in non-performing
loans was due to a P6.14 billion combined reduction in non-performing loans
reported by 18 banks which more than offset the P1.31 billion combined increase
in non-performing loans of 16 banks. The remaining eight reporting banks
reported no change in their non-performing loans.
REVENUES AND EXPENDITURES
Total Government revenues for the first five months of 2004 were P288.8
billion, reflecting a 12.5% increase in revenues over the first five months of
2003. BIR collections in the first five months of 2004 were P193.3 billion, a
9.1% increase from BIR collections in the same period for 2003. Despite the
increase in tax collections, the BIR remains behind its collections target
because of decreased issuances of government securities, lower treasury bill
rates and lower interest rates on taxable deposits, all of which decreased
income taxes from interest income.
Bureau of Customs revenues were P50.1 billion in the first five months of
2004, an increase of 14.7% from the same period of 2003 attributable mainly to
peso depreciation, higher average tariffs and administrative reforms.
Remittances to the Bureau of Treasury were P24.8 billion in the first five
months of 2004, an increase of 13.2% from the same period of 2003 caused by
higher income from investments in sinking fund accounts and securities, as well
as by increased fees for providing guarantees and foreign exchange cover to
government-owned-and-controlled corporations.
Total governmental expenditures in the first five months of 2004 were
P366.1 billion, 10.3% more than in the first five months of 2003. The increase
in expenditures was attributable mostly to a 9.5% increase in interest payments
due to higher foreign exchange and interest payments for foreign loans and a
7.8% increase in personnel expenditures, in each case from the first five months
of 2003 to the first five months of 2004. Maintenance and operating expenditures
and infrastructure expenditures both increased from the first five months of
2003 to the first five months of 2004, reflecting operating expenses released
for the conduct of elections and outlays for infrastructure and other projects.
Overall, the government fiscal deficit stood at P77.4 billion for the first
five months of 2004, P2.2 billion less than the target of P79.6 billion for the
first six months of 2004.
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EXTERNAL DEBT
As of March 31, 2004, the Republic's outstanding external debt approved by
or registered with Bangko Sentral was $56.7 billion, reflecting a decrease of
$700 million from the $57.4 billion recorded as of December 31, 2003 but an
increase of $1.2 billion from the $55.5 billion as of March 31, 2003. This
decrease over the first quarter of 2004 was mainly due to a change in Bangko
Sentral's accounting methodology which excluded resident-to-resident accounts
from external debt.
Applying the previously applied methodology, Bangko Sentral-approved
external debt rose by $1.3 billion over the first quarter of 2004 due to
additional borrowings and upward foreign exchange revaluation adjustments on
third-country currency denominated debt resulting from the continued
depreciation of the US dollar against third-country currencies.
Under the Electric Power Industry Reform Act of 2001, the Government is
obligated to assume P200 billion of NPC's debt. In June 2004, the Government
announced its intention to assume an additional P300 billion of debt of National
Power Corporation ("NPC") as part of the ongoing privatization of the Philippine
electric power industry. This would raise the total amount of debt of NPC to be
assumed by the Government to P500 billion (approximately $8.9 billion as of June
29, 2004).
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DESCRIPTION OF THE GLOBAL BONDS
GENERAL
The global bonds will be issued under a fiscal agency agreement, dated as
of October 4, 1999, as amended by a supplement to the fiscal agency agreement
dated February 26, 2004 and supplemented by an additional supplement to be dated
July 7, 2004, between the Republic and JPMorgan Chase Bank, as fiscal agent. The
global bonds and the Existing Bonds will, following consolidation on July 20,
2004, constitute a single series. The global bonds are a series of debt
securities more fully described in the accompanying prospectus, except to the
extent indicated below. The following statements are subject to the provisions
of the fiscal agency agreement, the supplement to the fiscal agency agreement
and the global bonds. This summary does not purport to be complete and the
description below may not contain all of the information that is important to
you as a potential investor in the global bonds. The Republic has filed forms of
these documents as exhibits to the registration statement numbered 333-108310.
You should refer to the exhibits for more complete information. Capitalized
terms not defined below shall have the respective meanings given in the
accompanying prospectus.
The global bonds will:
- initially be represented by temporary global securities with a different
International Securities Identification Number ("ISIN"), CUSIP number and
Common Code number than the Existing Bonds;
- bear interest at 9.375% from the date they are delivered to investors
(expected to be on or about July 7, 2004);
- mature at par on January 18, 2017;
- pay interest on July 19, 2004 for the period through but excluding July
18, 2004 to the persons in whose names the global bonds are registered on
the date the global bonds are delivered to investors; and
- on July 20, 2004, be consolidated with, form a single series with and be
fungible with the Existing Bonds, whereupon they will have the same ISIN,
CUSIP number and Common Code number as the Existing Bonds.
Once consolidated with the Existing Bonds on July 20, 2004, the global
bonds will:
- bear interest at 9.375% per year from July 18, 2004;
- pay interest on January 18 and July 18 of each year, commencing January
18, 2005; and
- pay interest to the persons in whose names the global bonds are
registered on the record date, which is the close of business on the
preceding January 1 or July 1 (whether or not a business day), as the
case may be. Interest will be calculated on the basis of a 360-day year,
consisting of twelve 30-day months.
The global bonds will rank pari passu with the Existing Bonds in all
respects. The total principal amount of the Existing Bonds and the global bonds
now being issued will be $1,000,000,000.
The Republic has applied to the Luxembourg Stock Exchange for listing of,
and permission to deal in, the global bonds in accordance with the rules of the
Luxembourg Stock Exchange. We cannot guarantee that the application to the
Luxembourg Stock Exchange will be approved, and settlement of the global bonds
is not conditioned on obtaining the listing.
BOOK ENTRY
The Republic will issue the global bonds in the form of fully registered
global securities, initially in the form of temporary global securities. The
Republic will deposit the temporary global securities with DTC and register the
temporary global securities in the name of Cede & Co., as DTC's nominee.
Beneficial interests in the temporary global securities will be represented by,
and transfers thereof will be effected only through, book-entry accounts
maintained by DTC and its participants.
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On July 20, 2004, a permanent global security will be issued to represent
the global bonds in the form of fully registered global securities, and the
temporary global securities will be cancelled. The Republic will deposit the
permanent global securities with DTC and register the permanent global
securities in the name of Cede & Co., and transfers thereof will be effected
only through book-entry accounts maintained by DTC and its participants.
CERTIFICATED SECURITIES
In circumstances detailed in the accompanying prospectus (see "Description
of the Securities -- Description of the Debt Securities -- Global Securities --
Registered Ownership of the Global Security"), the Republic could issue
certificated securities. The Republic will only issue certificated securities in
fully registered form in denominations of $1,000 and integral multiples thereof.
The holders of certificated securities shall present directly at the corporate
trust office of the fiscal agent, at the office of the Luxembourg paying and
transfer agent or at the office of any other transfer agent as the Republic may
designate from time to time all requests for the registration of any transfer of
such securities, for the exchange of such securities for one or more new
certificated securities in a like aggregate principal amount and in authorized
denominations and for the replacement of such securities in the cases of
mutilation, destruction, loss or theft. Certificated securities issued as a
result of any partial or whole transfer, exchange or replacement of the global
bonds will be delivered to the holder at the corporate trust office of the
fiscal agent, at the office of the Luxembourg paying and transfer agent or at
the office of any other transfer agent, or (at the risk of the holder) sent by
mail to such address as is specified by the holder in the holder's request for
transfer, exchange or replacement.
REGISTRATION AND PAYMENTS
The Republic will pay the principal amount of a global bond on its maturity
date in immediately available funds in the City of New York upon presentation of
the global bond at the office of the fiscal agent in the City of New York or,
subject to applicable law and regulations, at the office outside the United
States of any paying agent, including the Luxembourg paying agent (if the global
bonds are listed on the Luxembourg Stock Exchange and the rules of the exchange
so require).
The Republic will appoint the fiscal agent as registrar, principal paying
agent and transfer agent of the global bonds. In these capacities, the fiscal
agent will, among other things:
- maintain a record of the aggregate holdings of global bonds represented
by the global securities and any certificated securities and accept
global bonds for exchange and registration of transfer;
- ensure that payments of principal and interest in respect of the global
bonds received by the fiscal agent from the Republic are duly paid to the
depositaries for the global securities or their respective nominees and
any other holders of any global bonds; and
- transmit to the Republic any notices from holders of any of the global
bonds.
For as long as global bonds are listed on the Luxembourg Stock Exchange,
and the rules of the Luxembourg Stock Exchange so require, the Republic will
appoint and maintain a Luxembourg paying and transfer agent, who shall initially
be Dexia Banque Internationale a Luxembourg societe anonyme. Payments and
transfers with respect to the global bonds may be effected through the
Luxembourg paying and transfer agent, which will be executed through Euroclear
and Clearstream, Luxembourg. Holders of certificated global bonds may present
such securities for registration of transfer or payment at the office of the
Luxembourg paying and transfer agent. Forms of the transfer notice (or other
instrument of transfer) are available, and duly completed transfer notices (or
other instrument of transfer) may be submitted, at the office of the Luxembourg
paying and transfer agent. For so long as the global bonds are listed on the
Luxembourg Stock Exchange, the Republic will publish any change as to the
identity of the Luxembourg paying and transfer agent in a leading newspaper in
Luxembourg, which is expected to be the Luxemburger Wort.
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REDEMPTION AND SINKING FUND
The Republic may not redeem the global bonds prior to maturity. The
Republic will not provide a sinking fund for the amortization and retirement of
the global bonds.
OPTIONAL HOLDER REDEMPTION
Each holder of the global bonds may require the Republic to purchase that
holder's global bonds at par on January 18, 2012. Each holder may so redeem less
than the entire principal amount of any global bond on such date, provided the
principal amount to be redeemed is equal to $1,000 or an integral multiple of
$1,000.
DTC or its nominee, as registered holder of the global bonds, will be
entitled to tender the global bonds on January 18, 2012 for repayment. During
the period from and including November 18, 2011 to and including December 18,
2011, DTC will receive instructions from its participants (acting on behalf of
owners of beneficial interests in the global bonds) to tender the global bonds
for repayment under DTC's procedures. Such tenders for repayment will be made by
DTC, provided that DTC receives instructions from tendering participants by noon
on December 18, 2011. DTC will notify the fiscal agent by the close of business
on such date as to the aggregate principal amount of the global bonds, if any,
for which DTC shall have received instructions to tender for repayment. Each
owner of beneficial interests in global bonds who wishes to effectuate the
tender and repayment of such global bonds must instruct its respective DTC
participant or participants a reasonable period of time in advance of December
18, 2011.
FURTHER ISSUES
For a description of the Republic's ability from time to time to issue
further bonds that will form a single series with the global bonds, see
"Description of the Securities -- Description of the Debt Securities -- Further
Issues of Debt Securities" in the accompanying prospectus.
REGARDING THE FISCAL AGENT
The fiscal agent has its principal corporate trust office at 4 New York
Plaza, 15th Floor, New York, New York 10004. The Republic will at all times
maintain a paying agent and a transfer agent in the City of New York which will,
unless otherwise provided, be the fiscal agent. The Republic may maintain
deposit accounts and conduct other banking transactions in the ordinary course
of business with the fiscal agent. The fiscal agent will be the agent of the
Republic, not a trustee for holders of any global bonds. Accordingly, the fiscal
agent will not have the same responsibilities or duties to act for such holders
as would a trustee, except that all funds held by the fiscal agent for the
payment of principal of (and premium, if any) or interest on the global bonds
shall be held by the fiscal agent in trust for the holders of the global bonds.
The fiscal agency agreement and the supplement to the fiscal agency
agreement are not required to be qualified under the US Trust Indenture Act of
1939. Accordingly, the fiscal agency agreement and the supplement to the fiscal
agency agreement may not contain all of the provisions which could be beneficial
to holders of the global bonds which would be contained in an indenture
qualified under the Trust Indenture Act.
NOTICES
So long as the global bonds are listed on the Luxembourg Stock Exchange,
all notices will be published in Luxembourg in a leading newspaper of general
circulation in Luxembourg, which is expected to be the Luxemburger Wort. If the
Republic cannot, for any reason, publish notice in this newspaper, it will
choose an appropriate leading newspaper of general circulation in Luxembourg,
and notice in that newspaper will be considered valid notice. Notice will be
considered made as of the first date of its publication.
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GLOBAL CLEARANCE AND SETTLEMENT
The Depository Trust Company ("DTC"), Euroclear and Clearstream, Luxembourg
have established links among themselves to facilitate the initial settlement of
the global bonds and cross-market transfers of the global bonds in secondary
market trading. DTC will be linked to JPMorgan Chase Bank, a New York banking
corporation, as depositary of the Euroclear System ("Euroclear"), and Citibank,
N.A., as depositary for Clearstream Banking, societe anonyme ("Clearstream,
Luxembourg") (the "Clearing System Depositaries").
Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the
procedures provided below to facilitate transfers of global bonds among
participants of DTC, Euroclear and Clearstream, Luxembourg, they are under no
obligation to perform such procedures. In addition, such procedures may be
modified or discontinued at any time. Neither the Republic nor the Fiscal Agent
will have any responsibility for the performance by DTC, Euroclear or
Clearstream, Luxembourg or their respective participants or indirect
participants of the respective obligations under the rules and procedures
governing their operations.
THE CLEARING SYSTEMS
THE DEPOSITORY TRUST COMPANY. DTC is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" under the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" under the New York Uniform Commercial Code; and
- a "clearing agency" registered under Section 17A of the US Securities
Exchange Act of 1934.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between its participants. It
does this through electronic book-entry settlement in the accounts of its direct
participants, eliminating the need for physical movement of securities
certificates. DTC is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
DTC can act only on behalf of its direct participants, who in turn act on
behalf of indirect participants and certain banks. In addition, unless a global
security is exchanged in whole or in part for a definitive security, it may not
be physically transferred, except as a whole among DTC, its nominees and their
successors. Therefore, your ability to pledge a beneficial interest in the
global security to persons that do not participate in the DTC system, and to
take other actions, may be limited because you will not possess a physical
certificate that represents your interest.
EUROCLEAR AND CLEARSTREAM, LUXEMBOURG. Like DTC, Euroclear and
Clearstream, Luxembourg hold securities for their participants and facilitate
the clearance and settlement of securities transactions between their
participants through electronic book-entry settlement in their accounts.
Euroclear and Clearstream, Luxembourg provide various services to their
participants, including the safekeeping, administration, clearance and
settlement and lending and borrowing of internationally traded securities.
Euroclear and Clearstream, Luxembourg participants are financial institutions
such as underwriters, securities brokers and dealers, banks, trust companies and
other organizations. Other banks, brokers, dealers and trust companies have
indirect access to Euroclear or Clearstream, Luxembourg by clearing through or
maintaining a custodial relationship with a Euroclear or Clearstream, Luxembourg
participant.
INITIAL SETTLEMENT
If you plan to hold your interests in the securities through DTC, you will
follow the settlement practices applicable to global security issues. If you
plan to hold your interests in the securities through Euroclear or Clearstream,
Luxembourg, you will follow the settlement procedures applicable to conventional
Eurobonds in registered form. If you are an investor on the settlement date, you
will pay for the global bonds by wire transfer
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and the entity through which you hold your interests in the global bonds will
credit your securities custody account.
SECONDARY MARKET TRADING
The purchaser of securities determines the place of delivery in secondary
market trading. Therefore, it is important for you to establish at the time of
the trade where both the purchaser's and seller's accounts are located to ensure
that settlement can be made on the desired value date (i.e., the date specified
by the purchaser and seller on which the price of the securities is fixed).
TRADING BETWEEN DTC PARTICIPANTS. DTC participants will transfer interests
in the securities among themselves in the ordinary way according to the rules
and operating procedures of DTC governing global security issues. Participants
will pay for these transfers by wire transfer.
TRADING BETWEEN EUROCLEAR AND/OR CLEARSTREAM, LUXEMBOURG
PARTICIPANTS. Euroclear and Clearstream, Luxembourg participants will transfer
interests in the securities among themselves in the ordinary way according to
the rules and operating procedures of Euroclear and Clearstream, Luxembourg
governing conventional Eurobonds. Participants will pay for these transfers by
wire transfer.
TRADING BETWEEN A DTC SELLER AND A EUROCLEAR OR CLEARSTREAM, LUXEMBOURG
PURCHASER. When the securities are to be transferred from the account of a DTC
participant to the account of a Euroclear or Clearstream, Luxembourg
participant, the purchaser must first send instructions to Euroclear or
Clearstream, Luxembourg through a participant at least one business day before
the settlement date for such securities. Euroclear or Clearstream, Luxembourg
will then instruct its depositary to receive the securities and make payment for
them. On the settlement date for such securities, the depositary will make
payment to the DTC participant's account and the securities will be credited to
the depositary's account. After settlement has been completed, DTC will credit
the securities to Euroclear or Clearstream, Luxembourg, and in turn Euroclear or
Clearstream, Luxembourg will credit the securities, in accordance with its usual
procedures, to the participant's account, and the participant will then credit
the purchaser's account. These securities credits will appear the next day
(European time) after the settlement date. The cash debit from the account of
Euroclear or Clearstream, Luxembourg will be back-valued to the value date,
which will be the preceding day if settlement occurs in New York. If settlement
is not completed on the intended value date (i.e., the trade fails), the cash
debit will instead be valued at the actual settlement date.
Participants in Euroclear and Clearstream, Luxembourg will need to make
funds available to Euroclear or Clearstream, Luxembourg in order to pay for the
securities by wire transfer on the value date. The most direct way of doing this
is to preposition funds (i.e., have funds in place at Euroclear or Clearstream,
Luxembourg before the value date), either from cash on hand or from existing
lines of credit. Under this approach, however, participants may take on credit
exposure to Euroclear and Clearstream, Luxembourg until the securities are
credited to their accounts one day later.
As an alternative, if Euroclear or Clearstream, Luxembourg has extended a
line of credit to a participant, the participant may decide not to preposition
funds, but to allow Euroclear or Clearstream, Luxembourg to draw on the line of
credit to finance settlement for the securities. Under this procedure, Euroclear
or Clearstream, Luxembourg would charge the participant overdraft charges for
one day, assuming that the overdraft would be cleared when the securities were
credited to the participant's account. However, interest on the securities would
accrue from the value date. Therefore, in many cases the interest income on
securities which the participant earns during that one-day period will
substantially reduce or offset the amount of the participant's overdraft
charges. Of course, this result will depend on the cost of funds to (i.e., the
interest rate that Euroclear or Clearstream, Luxembourg charges) each
participant.
Since the settlement will occur during New York business hours, a DTC
participant selling an interest in the securities can use its usual procedures
for transferring global securities to the Clearing System Depositaries of
Euroclear or Clearstream, Luxembourg for the benefit of Euroclear or
Clearstream, Luxembourg participants. The DTC seller will receive the sale
proceeds on the settlement date. Thus, to the DTC seller, a cross-market sale
will settle no differently than a trade between two DTC participants.
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Finally, day traders that use Euroclear or Clearstream, Luxembourg and that
purchase global bonds from DTC participants for credit to Euroclear participants
or Clearstream, Luxembourg participants should note that these trades will
automatically fail on the sale side unless one of the following three steps is
taken:
- borrowing through Euroclear or Clearstream, Luxembourg for one day, until
the purchase side of the day trade is reflected in their Euroclear
account or Clearstream, Luxembourg account, in accordance with the
clearing system's customary procedures;
- borrowing the global bonds in the United States from a DTC participant no
later than one day prior to settlement, which would give the global bonds
sufficient time to be reflected in the borrower's Euroclear account or
Clearstream, Luxembourg account in order to settle the sale side of the
trade; or
- staggering the value dates for the buy and sell sides of the trade so
that the value date of the purchase from the DTC participant is at least
one day prior to the value date for the sale to the Euroclear participant
or Clearstream, Luxembourg participant.
TRADING BETWEEN A EUROCLEAR OR CLEARSTREAM, LUXEMBOURG SELLER AND A DTC
PURCHASER. Due to time zone differences in their favor, Euroclear and
Clearstream, Luxembourg participants can use their usual procedures to transfer
securities through their Clearing System Depositaries to a DTC participant. The
seller must first send instructions to Euroclear or Clearstream, Luxembourg
through a participant at least one business day before the settlement date.
Euroclear or Clearstream, Luxembourg will then instruct its depositary to credit
the securities to the DTC participant's account and receive payment. The payment
will be credited in the account of the Euroclear or Clearstream, Luxembourg
participant on the following day, but the receipt of the cash proceeds will be
back valued to the value date, which will be the preceding day if settlement
occurs in New York. If settlement is not completed on the intended value date
(i.e., the trade fails), the receipt of the cash proceeds will instead be valued
at the actual settlement date.
If the Euroclear or Clearstream, Luxembourg participant selling the
securities has a line of credit with Euroclear or Clearstream, Luxembourg and
elects to be in debit for the securities until it receives the sale proceeds in
its account, then the back-valuation may substantially reduce or offset any
overdraft charges that the participant incurs over that one-day period.
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TAXATION
The following discussion summarizes certain U.S. federal income and estate
tax and Philippine tax considerations that may be relevant to you if you invest
in global bonds. This summary is based on laws, regulations, rulings and
decisions now in effect in the United States and on laws and regulations in
effect in the Philippines and may change. Any change could apply retroactively
and could affect the continued validity of this summary.
This summary does not describe all of the tax considerations that may be
relevant to you or your situation, particularly if you are subject to special
tax rules.
GENERAL
The Republic urges you to consult your own tax advisors to determine your
particular tax consequences in respect of participating in the offering, and of
owning and selling the global bonds.
PHILIPPINE TAXATION
The following is a summary of certain Philippine tax consequences that may
be relevant to non-Philippine holders of the global bonds in connection with the
holding and disposition of the global bonds. The Republic uses the term
"non-Philippine holders" to refer to (i) non-residents of the Philippines who
are neither citizens of the Philippines nor are engaged in trade or business
within the Philippines or (ii) non-Philippine corporations not engaged in trade
or business in the Philippines.
This summary is based on Philippine laws, rules, and regulations now in
effect, all of which are subject to change. It is not intended to constitute a
complete analysis of the tax consequences under Philippine law of the receipt,
ownership, or disposition of the global bonds, in each case by non-Philippine
holders, nor to describe any of the tax consequences that may be applicable to
residents of the Republic.
EFFECT OF HOLDING GLOBAL BONDS. Payments by the Republic of principal of
and interest on the global bonds to a non-Philippine holder will not subject
such non-Philippine holder to taxation in the Philippines by reason solely of
the holding of the global bonds or the receipt of principal or interest in
respect thereof.
TAXATION OF INTEREST ON THE GLOBAL BONDS. When the Republic makes payments
of principal and interest to you on the global bonds, no amount will be withheld
from such payments for, or on account of, any taxes of any kind imposed, levied,
withheld or assessed by the Philippines or any political subdivision or taxing
authority thereof or therein.
TAXATION OF CAPITAL GAINS. Under the Philippine Tax Code, any gain
realized from the sale, exchange or retirement of securities with an original
maturity of more than five years from the date of issuance will not be subject
to income tax. Since the global bonds have a maturity of more than five years
from the date of issuance, any gains realized by a holder of the global bonds
will not be subject to Philippine income tax. Non-Philippine holders of the
global bonds will not be subject to Philippine income or withholding tax in
connection with the sale, exchange, or retirement of a global bond if such sale,
exchange or retirement is made outside the Philippines or an exemption is
available under an applicable tax treaty in force between the Philippines and
the country of domicile of the non-Philippine holder.
DOCUMENTARY STAMP TAXES. No documentary stamp tax is imposed upon the
transfer of the global bonds. A documentary stamp tax, at the rate of P1.00 for
every P200, or fractional amount thereof, of the issue value, is payable upon
the issuance of the global bonds and will be for the account of the Republic.
ESTATE AND DONOR'S TAXES. The transfer of a global bond by way of
succession upon the death of a non-Philippine holder will be subject to
Philippine estate tax at progressive rates ranging from 5% to 20% if the value
of the net estate of properties located in the Philippines is over P200,000.
The transfer of a global bond by gift to an individual who is related to
the nonresident holder will generally be subject to a Philippine donor's tax at
progressive rates ranging from 2% to 15% if the value of the net gifts of
properties located in the Philippines exceed P100,000 during the relevant
calendar year. Gifts to
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unrelated donees are generally subject to tax at a flat rate of 30%. An
unrelated donee is a person who is not a (i) brother, sister (whether by whole
or half blood), spouse, ancestor, or lineal descendant or (ii) relative by
consanguinity in the collateral line within the fourth degree of relationship.
The foregoing apply even if the holder is a nonresident holder. However,
the Republic will not collect estate and donor's taxes on the transfer of the
global bonds by gift or succession if the deceased at the time of death, or the
donor at the time of donation, was a citizen and resident of a foreign country
that provides certain reciprocal rights to citizens of the Philippines (a
"Reciprocating Jurisdiction"). For these purposes, a Reciprocating Jurisdiction
is a foreign country which at the time of death or donation (i) did not impose a
transfer tax of any character in respect of intangible personal property of
citizens of the Philippines not residing in that foreign country or (ii) allowed
a similar exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.
UNITED STATES TAXATION
The global bonds to be issued pursuant to this offering should form part of
a "qualified reopening," and therefore, part of the issue by the Republic on
January 18, 2002, of 9.375% Global Bonds due 2017 for US federal income tax
purposes.
For a description of certain United States tax aspects of the global bonds,
see "Taxation -- United States Tax Considerations" in the accompanying
prospectus.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
which consists of a terms agreement dated June 29, 2004 and the underwriting
agreement standard terms filed as an exhibit to the registration statement, the
Republic has agreed to sell global bonds in the principal amount of
US$250,000,000 to the underwriter named below, and the underwriter has agreed to
purchase from the Republic, the principal amount of the global bonds listed
opposite its name below.
<Table>
<Caption>
UNDERWRITER PRINCIPAL AMOUNT
- ----------- ----------------
J.P. Morgan Securities Inc. ................................ US$250,000,000
</Table>
The underwriting agreement provides that the underwriter is obligated to
purchase all of the global bonds if any are purchased.
The Republic has agreed to indemnify the underwriter against liabilities
under the Securities Act of 1933 or contribute to payments which the underwriter
may be required to make in that respect.
The underwriter has agreed to reimburse the Republic for certain expenses.
COMMISSIONS AND DISCOUNTS
The underwriter has advised the Republic that it proposes to offer the
global bonds to the public initially at the public offering price that appears
on the cover page of this prospectus supplement. After the initial public
offering, the underwriter may change the public offering price and any other
selling terms.
In connection with this offering of the global bonds, the underwriter may
engage in overallotment, stabilizing transactions and syndicate covering
transactions in accordance with Regulation M under the Securities Exchange Act
of 1934. Overallotment involves sales in excess of the offering size, which
create a short position for the underwriter. Stabilizing transactions involve
bids to purchase the global bonds in the open market for the purpose of pegging,
fixing or maintaining the price of the global bonds. Syndicate covering
transactions involve purchases of the global bonds in the open market after the
distribution has been completed in order to cover short positions. Stabilizing
transactions and syndicate covering transactions may cause the price of the
global bonds to be higher than it would otherwise be in the absence of those
transactions. If the underwriter engages in stabilizing or syndicate covering
transactions, it may discontinue them at any time. The Republic has been advised
by the underwriter that it intends to make a market in the global bonds, but the
underwriter is not obligated to do so and may discontinue any market-making
activities at any time without notice. No assurance can be given as to the
liquidity of or the trading market for the global bonds.
In compliance with NASD guidelines the maximum compensation to any
underwriters or agents in connection with the sale of any securities pursuant to
the prospectus and applicable prospectus supplements (including this supplement)
will not exceed 8% of the aggregate total offering price to the public of such
securities as set forth on the cover page of the applicable prospectus
supplement; however, it is anticipated that the maximum compensation paid will
be significantly less than 8%.
UK SELLING RESTRICTIONS
The underwriter has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to the global bonds
in, from or otherwise involving the United Kingdom.
HONG KONG SELLING RESTRICTIONS
The underwriter has not issued or had in its possession for the purposes of
issue, and will not issue or have in its possession for the purpose of issue,
any advertisement, invitation or document relating to the global bonds, whether
in Hong Kong or elsewhere, which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong (except if permitted
to do so under the securities laws of Hong Kong) other than with respect to
global bonds which are or are intended to be disposed of only to persons
S-24
outside Hong Kong or only to "professional investors" within the meaning of the
Securities and Futures Ordinance (Cap. 571) of the laws of Hong Kong and any
rules made thereunder.
SINGAPORE SELLING RESTRICTIONS
This prospectus supplement and the prospectus to which it relates have not
been registered as a prospectus with the Monetary Authority of Singapore (the
"MAS") under the Securities and Futures Act, Chapter 289 of the Singapore
statutes (the "Securities and Futures Act"). Accordingly, the global bonds may
not be offered or sold or made the subject of an invitation for subscription or
purchase nor may this prospectus supplement and the prospectus to which it
relates or any other document or material in connection with the offer or sale,
or invitation for subscription or purchase of such global bonds be circulated or
distributed, whether directly or indirectly, to the public or any member of the
public in Singapore other than (1) to an institutional investor or other person
falling within Section 274 of the Securities and Futures Act, (2) to a
sophisticated investor (as defined in Section 275 of the Securities and Futures
Act) and in accordance with the conditions specified in Section 275 of the
Securities and Futures Act or (3) otherwise than pursuant to, and in accordance
with the conditions of, any other applicable provision of the Securities and
Futures Act.
JAPAN SELLING RESTRICTIONS
The global bonds have not been and will not be registered under the
Securities and Exchange Law of Japan (the "Securities and Exchange Law"), and
the underwriter has not and will not offer or sell any global bonds, directly or
indirectly, in Japan or to, or for the benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan) or to others for
reoffering or resale, directly or indirectly, in Japan or to any resident of
Japan except in compliance with all the applicable laws and regulations of
Japan. Pursuant to the Foreign Exchange and Foreign Trade Law of Japan, the
Republic may be required to file a report in connection with the issuance or
offering of global bonds in Japan or the issuance or offering outside Japan of
global bonds denominated or payable in Yen with the Ministry of Finance of Japan
(the "MOF") within a limited period of time after the issue of the global bonds.
The underwriter is required to provide any necessary information on sales of
global bonds in Japan to the Republic (which shall not include the names of the
purchasers thereof) so that the Republic may make such reports to the MOF.
REPUBLIC OF THE PHILIPPINES SELLING RESTRICTIONS
The global bonds constitute exempt securities within the meaning of the
Philippine Securities Regulation Code and as such are not required to be
registered under the provisions of the said Code before they can be sold or
offered for sale or distribution in the Philippines. However, the global bonds
may be sold or offered for sale in the Philippines only by underwriters, dealers
or brokers duly licensed by the Philippine Securities and Exchange Commission.
NETHERLANDS SELLING RESTRICTIONS
The global bonds may not be offered, sold, transferred or delivered in the
Netherlands as part of their initial distribution or at any time thereafter,
directly or indirectly, other than to banks, brokers, pension funds, insurance
companies, securities firms, investment institutions, central governments, large
international and supranational institutions and other comparable entities,
including, inter alia, treasuries and finance companies of large enterprises
which trade or invest in securities in the conduct of a profession or trade.
Individuals or legal entities who or which do not trade or invest in securities
in the conduct of their profession or trade may not participate in the offering,
and the prospectus supplement and the accompanying prospectus may not be
considered an offer or the prospect of an offer to participate in the offering.
REPUBLIC OF ITALY SELLING RESTRICTIONS
No solicitations in connection with the global bond offering will be made
in Italy by any party, including the underwriter. No copies of this prospectus
supplement, the accompanying prospectus or any other
S-25
documents relating to the global bonds or the global bond offering will be
distributed in Italy. No global bonds will be offered, sold or delivered in
Italy.
SETTLEMENT AND DELIVERY
The Republic expects that delivery of the global bonds will be made against
payment therefor on or about the closing date specified on the cover page of
this prospectus supplement, which will be the fifth business day following the
date of pricing of the global bonds. Under Rule 15c6-1 of the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to a trade expressly agree otherwise.
Accordingly, purchasers who wish to trade global bonds on the date of pricing or
the next succeeding business day will be required, by virtue of the fact that
the global bonds initially will settle in "T+5", to specify alternative
settlement arrangements to prevent a failed settlement.
RELATIONSHIP OF UNDERWRITERS WITH THE REPUBLIC
The underwriters have in the past and may in the future provide investment
and commercial banking and other related services to the Republic in the
ordinary course of business for which the underwriters and/or their respective
affiliates have received or may receive customary fees and reimbursement of out
of pocket expenses.
S-26
LEGAL MATTERS
The validity of the global bonds will be passed upon on behalf of the
Republic as to Philippine law by the Secretary of the Department of Justice of
the Republic, and as to US federal law and New York State law by Allen & Overy.
Certain matters will be passed upon for the underwriters by Cleary, Gottlieb,
Steen & Hamilton, United States counsel for the underwriters, as to matters of
US federal law and New York State law, and by Romulo, Mabanta, Buenaventura,
Sayoc & de los Angeles, Philippine counsel for the underwriters, as to matters
of Philippine law.
GENERAL INFORMATION
1. The global bonds have been accepted for clearance through the Depository
Trust Corporation, Euroclear and Clearstream, Luxembourg. Through July 19, 2004,
the International Securities Identification Number is US718286AX52, the CUSIP
number is 718286AX5 and the Common Code number is 019611647.
2. The Republic's currently outstanding US$750,000,000 9.375% Global Notes
due 2017 issued on January 18, 2002, which on July 20 will consolidate and form
a single series with the global bonds, have previously been accepted for
clearance through The Depository Trust Corporation, Euroclear and Clearstream,
Luxembourg. Their International Securities Identification Number is
US718286AQ02, their CUSIP number is 718286AQ0, and their Common Code number is
014156364. Upon consolidation, the global bonds will also have these
identification numbers.
3. The issue and sale of the new global bonds was authorized by the Full
Powers signed by the President of the Republic dated March 26, 2004.
4. Except as disclosed in this prospectus supplement and the accompanying
prospectus, there has been no material adverse change in the fiscal condition or
affairs of the Republic which is material in the context of the issue of the
global bonds since April 15, 2004.
5. Application has been made to list the global bonds on the Luxembourg
Stock Exchange. Copies of the following documents will, so long as any global
bonds are listed on the Luxembourg Stock Exchange, be available for inspection
during usual business hours at the specified office of Dexia Banque
Internationale a Luxembourg societe anonyme in Luxembourg:
- copies of the Registration Statement, which includes the fiscal agency
agreement, the supplement to the fiscal agency agreement and the form of
the underwriting agreement as exhibits thereto; and
- the Full Powers signed by the President of the Republic dated March 26,
2004 and the resolution of the Monetary Board of Bangko Sentral adopted
on June 23, 2004, authorizing the issue and sale of the global bonds.
In addition, so long as the global bonds are outstanding or listed on the
Luxembourg Stock Exchange, copies of the Philippines' economic reports for each
year in English (as and when available) will be available at the offices of the
listing agent in Luxembourg during normal business hours on any weekday. The
underwriting agreement, the fiscal agency agreement and the supplement to the
fiscal agency agreement shall also be available free of charge at the office of
the listing agent and the Luxembourg paying and transfer agent.
6. Dexia Banque Internationale a Luxembourg societe anonyme has been
appointed as the Luxembourg paying and transfer agent. For so long as the global
bonds are listed on the Luxembourg Stock Exchange and the rules of the
Luxembourg Stock Exchange so require, the Republic will maintain a Luxembourg
paying and transfer agent.
S-27
ISSUER
REPUBLIC OF THE PHILIPPINES
Department of Finance
Office of the Secretary
Department of Finance Building
BSP Complex
Manila
Republic of the Philippines
FISCAL AGENT, PRINCIPAL PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
JPMORGAN CHASE BANK
4 New York Plaza
15th Floor
New York, New York 10004
United States of America
LISTING, PAYING AND
TRANSFER AGENT
DEXIA BANQUE INTERNATIONALE A LUXEMBOURG
SOCIETE ANONYME
69, route d'Esch
L-2953 Luxembourg
<Table>
LEGAL ADVISORS TO THE ISSUER
as to US law as to Philippine law
ALLEN & OVERY DEPARTMENT OF JUSTICE
9th Floor, Three Exchange Square Padre Faura Street
Central Malate
Hong Kong SAR Manila
Republic of the Philippines
LEGAL ADVISORS TO THE UNDERWRITERS
as to US law as to Philippine law
CLEARY, GOTTLIEB, STEEN & HAMILTON ROMULO, MABANTA, BUENAVENTURA
Bank of China Tower SAYOC & DE LOS ANGELES
One Garden Road 30th Floor, Citibank Tower
Hong Kong SAR 8741 Paseo De Roxas
Makati City
Republic of the Philippines
</Table>
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