UPDATE 1-Manila may sell $2 bln of bonds in Jan-sources

By Rosemarie Francisco

MANILA, Dec 28 (Reuters) - The Philippines is working on raising a total $2 billion next month from a possible sale of bonds in U.S. dollars or euro and in yen to finance part of its budget deficit in 2010, sources said on Monday.

The government, one of Asia's largest sovereign debt issuers, has asked the central bank to approve an issue of as much as $1.5 billion in dollar or euro bonds next month to refinance debts falling due in February to March, two sources familiar with the deals told Reuters on Monday.

They asked for anonymity as they were not authorised to speak on the debt sales.

'We're looking at all options, there is no definite structure yet,' one of the sources said regarding the dollar or euro bond sale. 'For euro, in terms of investors, we would need to re-engage with them because we have not really been active in that market.'

Manila has 650 million euros in debt maturing on Feb. 22 and $561.5 million debt falling due on March 16 .

The Southeast Asian country has not yet mandated any bank for the dollar/euro bond issue because it was also preparing for a Samurai bond sale of around $500 million in late January, the second source said.

The government is preparing final documentation for the yen bond sale, including guarantee terms, for signing with the Japan Bank for International Cooperation (JBIC).

'We're hoping to finish everything by January, so we can do a yen bond sale late in the month,' the second source said, adding the actual size of the debt issue, initially estimated at $500 million, would depend on market conditions.

Manila and JBIC have been in talks since June to reach agreement on more affordable terms on up to $1 billion worth of yen bonds guaranteed by the state-backed lender within 2 years.

The government has said it needs to raise about $2 billion to cover its foreign borrowing requirements for 2010. It has secured a portion of this amount after it sold $1 billion in 25-year global bonds in October.

The cash-strapped government is facing a record budget deficit of around 300 billion pesos ($6.5 billion) this year and its shortfall in 2010 may only be slightly smaller as it steps up spending to rehabilitate farms, roads and bridges damaged by strong typhoons in September and October.

Analysts expect the country's 2010 fiscal shortfall to reach 278 billion pesos, higher than the government's deficit target of 233.4 billion pesos.

(For a Reuters poll on the 2010 shortfall, click on )

(Editing by Tomasz Janowski)

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