Retail Treasury Bonds Tranche 18 FAQs. September 6-16, 2016

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1 Questions by Attendees Q. If I already have an existing account with the bank I want to buy RTBs from, do I need to open another account specifically for this investment? A. No, any Peso Account, even an existing one would do. This is where the interest payments will be credited to.q. Our client is a tax exempt institution but their certification of exemption is dated They have a pending request for a certification since last year but BIR has not issued a new certification yet. Can they submit the 2006 certification to avail of the RTB? A. The institution must have to wait for the BIR certification for them to be exempted from tax prior to availing RTBs. Q. Are the terms of this RTB the same as those of the RTB issued three years ago? A. The REPUBLIC OF THE PHILIPPINES (the Republic ), acting through the Bureau of the Treasury (the BTr ), hereby adopts the foregoing amendments to the Program Mechanics dated 09 June 2003 (the Program Mechanics ), as follows: Sections 9(a) and 9(b) ( Events of Default ) are hereby amended to read: a. the Republic fails to pay when due any amount payable by the Republic hereunder and such failure continues for thirty (30) days; b. the Republic defaults in the performance or observance of, or compliance with, any of its obligations under the Retail Treasury Bonds (other than payment obligations) and such default continues for a period of sixty (60) days after notice of such default has been given to the Republic; Q. Where do proceeds of the RTBs go? How does the National Government make use of the funds? A. The NG can use the funds to refinance its existing debts. Due to the investment grade status of the Republic of the Philippines, the government can now borrow on better credit terms. But more importantly, the funds will be used to fund economic programs of the government, inclusive of infrastructure development and social services. Q. Is my principal investment guaranteed even if I sell before maturity? A. Depending on the prevailing market rates during the time of the sell down, there is a possibility that the proceeds may be lower than the principal investment. Q. Why are there fees involved when the RTBs are traded in the secondary market?

2 A. The fees represent payment of the service provided by the brokers and of the fixed income trading platforms where the RTBs are traded. Q. Are RTBs government guaranteed? A. No because it the government itself is the issuer so it cannot guarantee itself but it is a direct liability of the sovereign to the holder so it is a virtually risk free investment. Q. What is the cost consideration for the investor with respect to the handling of his RTBs? Broker intermediation fee? Custodianship fee? A. Upon placement on Primary Offer of RTBs: The investor would just have to pay the principal amount and no other charges shall be charged to him/her. Prior to the trading of RTBs in the secondary market: the investor shall be subject to maintenance fee amounting to 0.005%/4 (if RTB) or 0.005%/2 (if FXTN) every coupon payment Upon placement of RTBs on secondary market: The investor would have to pay the principal amount and broker s commission and mapping fee (Selling Agents charge Commissions 1/10 of 1%, inclusive of transaction fees of PDEx). Upon trading (client sells) in the secondary market: The investor shall be subject to broker s commission, mapping fee, and other applicable fees (Selling Agents charge Commissions 1/10 of 1%, inclusive of transaction fees of PDEx and maintenance fee amounting to 0.005%/4 (if RTB) or 0.005%/2 (if FXTN) subject to minimum of P25) Q. Can the RTBs be pre-terminated? A. No, RTBs cannot be pre-terminated. However, they can be sold through the secondary market. Q. Are RTBs eligible as collateral for loans? A. Yes they are. Q. In case of sudden death of the investor, how can the beneficiary claim the RTBs? A. The beneficiary may claim the proceeds of the RTBs subject to the inheritance law.

3 Q. Can RTBs be a joint account? A. Yes, it can be a joint account. Q. Can OFW purchase RTBs? What is the process if the OFW is out of the country? A. Yes, they definitely can, but it will be subject to consular laws and 3rd party custodianship, though it may take a lot of time and might exceed the 9 day offer period of the RTBs. Q. Who shall intermediate for an investor in the opening of his ROSS securities account? A. The broker shall be the intermediary. The investor must have to apply first to BTR with respect to opening his ROSS securities account. Then, the investor should have a settlement bank where he and the bank would settle a Memorandum of Agreement. Only then, can he open his ROSS account. Q. Can I buy P100,000 worth of RTBs, but in multiples of P20,000 all in the same name? A. Yes you can, but it might be tedious and time-consuming both for the investor and the settlement bank. Partial sale is allowed so P20,000 of a P100,000 RTB can be sold. Q. What are the requirements for individuals to invest in the RTBs? A. Individual investors will be required to open a Peso account or designate an existing Peso account with the Selling Agent where interest and principal payments will be credited. Investors must submit to the selling agent the requirements for purchasing the RTBs (i.e. Application to Purchase, Client Information Sheet, IDs, etc.) plus their payment for their investment. Q. Can we use and/or accounts? A. Yes, an investor can use and/or accounts, provided that the nominated bank account for crediting of interest and principal has the same and/or account name. Q. Is there a minimum age for investors for the RTBs? A. There is no minimum age requirement to purchase RTB. As long as the buyer can sign and understand the terms of the offering, he/she may be eligible to buy such financial instrument. However, for minor investors, their RTB placements may be placed under ITF or In Trust For accounts so long as the relationship between the trustor and trustee can be proven. Q. How can an investor access the secondary market?

4 A. An investor interested to sell or buy his RTBs in the secondary market may approach their respective selling agents or any NASBI broker. The rate for the RTBs in the secondary market will be based on the prevailing market rates which may be at a premium or discount to the issue price of the RTBs. Q. Why is the BTR issuing 10yr RTBs? A. The issuance of longer tenors for the RTBs is in line with the BTR s goal of developing the RTB market, promoting long-term savings for individuals and lengthening the duration of the government s maturity profile. Investors have recognized the advantage of investing in longer tenor RTBs as this means higher yields. Due to the existing low interest environment, search for higher returns have driven investors to look ar lonegr dated investments. Q. How was the final coupon rate for RTB-18 arrived at?? A. The pricing of the RTBs are done via a competitive auction participated by all Government Securities Eligible Dealers. The BTR accepted that yield because these were in line with secondary market rates for the 10-year bonds. Q. Are investments in RTBs subject to AMLA? A. Not directly. However, selling agents require their investor to fill up a customer information sheet in compliance with the Know Your Customer (KYC) provision of AMLA. Q. Did the Philippines previously default on repayment of its obligation? A. The Philippines has no record of default in its Peso obligation. Q. Assuming I bought my RTB with DBP, can I subsequently sell my RTB via another selling agent? A. Yes. Q. Can credit cooperatives buy rtb? A. Yes Q. Are there fixed income salesmen in branches of the selling agents? A. Not all branches have fixed income salesmen. However, if a specific branch does not have a fixed income salesmen, the investors can be directed to other fixed income salesmen in other branches Q. What are then considerations/risks attendant to selling-down to the secondary market? A. There is pricing risk in the secondary market. While there is liquidity for rtbs, its bond price and yield are subject to prevailing market conditions.

5 Q. If the economy is so robust, why is the government still borrowing money from the public? A. The credit rating of the National Government is already investment grade affirmed by the 3 major credit rating agencies. This means there is a level of confidence in Philippine credit which translates tothe National Government having the ability to access funds at competitive rates. Q. From a retiree intending to live-off on the interest from the RTBs: Can interest payments be scheduled on a monthly basis instead of quarterly? Therefore the earnings from the RTBs can be used to pay monthly bills (i.e. electricity, phone bills, etc.). A. Quarterly payments is the market convention. Also a monthly servicing of interest can be administratively cumbersome. Q. Can Senior Citizens interest income on the RTBs be exempt from withholding taxes? A. No, passive income is subject to withholding tax. Q. Is there a webpage where an investor can see the prices for issued RTBs? A. Yes. You may visit for more info. Q. What are the procedures to be undertaken by the heirs in case an investor dies? Are there taxes to be paid? A. Certain certifications are needed by the heirs (death certificate, etc). The heirs are required to pay estate taxes as legally speaking, the RTBs will form part of the deceased s estate. Q. Can fixed income salesmen guarantee that an investor will not suffer principal haircut when RTBs are sold in the secondary market? A. No, prices of RTBs are market driven. In the secondary market, bonds almost always trade for either more or less than par, because interest rates change continuously. When a bond trades for more than par, then it is selling at a premium, and when it is selling for less, it is selling at a discount. The main determinant of most bond prices in the secondary market is the prevailing interest rates. When interest rates rise, bond prices decline, and vice versa. Q. If an investor wants to sell, can he/she sell RTBs anytime? A. Yes. Can go anytime to his/her accredited dealer bank to sell.

6 Q. An individual who heard about the RTBs only for the first time expressed concern that offer period is for a limited time. In case she decides after Sept. 20, 2016, will she still be able to buy and from where? A. They can still buy RTBs after the offer period but through the secondary market already, with prices already based on prevailing market rates. Q. An investor plans to buy P500, worth of RTBs but intends to sell/trade in the future small/partial amounts only to cover living and other expenses. To achieve this, should the investor file several applications (to purchase), breaking down investment in several lots, so he/she can trade on a per application to purchase basis? A. No need to segregate RTB purchase through several ATPs as investors are allowed to do partial sale of bonds in the secondary market. Q. Can a foreigner invest in RTBs? A. Yes. Q. Why do other issues like SMB retail bonds have a better interest rate? A. Corporations need to pay a premium to the benchmark rates being set by trading of government securities due to the corporations credit risk. The higher the risk, the higher the return. Since the RTBs are sovereign issues, they are considered risk-free, and therefore entail lower interest rates than corporate issuances. Q. What happens to the rtbs if the bank wherein the purchase was made closes down? A. The RTBs are issued by the National Government. Therefore the RTBs remain. Servicing of RTB s interest and principal payments shall be transferred to a different bank. Q. What assurance will the investors have (settlement of principal and interest) in buying the RTBs in the secondary market? A. The Fixed-Income Exchange (operated by PDEx) follows a Delivery vs. Payment settlement system meaning the exchange of funds and securities occur simultaneously. In other words, funds will not be debited from the Buyer s account if the Seller doesn t have the securities in its account. Q. What are the factors (should we watch out for) that will affect the movement of interest rates? A. The interest rate level is affected by the price level or inflation rate, fiscal policy stance, and intermediation cost. Other factors that could influence the interest rates include the maturity period of the financial instrument and the perception of risks associated with the instrument. Q. What documentation will prove that they bought RTBs? A. Investors shall receive a Confirmation of Sale from their designated Selling Agents.

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