BDO issues P10 billion in Tier 2 notes

MANILA, Philippies - Banco de Oro Unibank Inc. (BDO) of SM mall magnate Henry Sy issued P10 billion worth of Tier 2 notes, twice the amount announced last month, to finance expansion plans, the bank has said. The Tier 2 notes — which is supplementary capital that ranks behind claims by depositors and other senior creditors in case of solvency — will be used to support BDO’s expansion plans and refinance an existing issue of dollar-denominated unsecured subordinated notes of about P200 million. Total demand for the notes reached more than five-times the original amount of P5 billion, which forced the bank to upsize the issue to P10 billion. The bank was also forced to shorten the offer period to one week due to the high demand. In a disclosure on Thursday to the Securities and Exchange Commission, the bank said that with an interest rate of 8.5%, the notes offer investors a premium over comparable five-year benchmark funds. The transaction is BDO’s second issuance; the first one was a similar P10 billion issue last November, making BDO the largest issuer of capital notes in the domestic market. The bank’s prospectus said that the notes will strengthen the bank’s capital base, ensuring that it has available capital for its growth plans in the coming years. The capital-raising activity was done more than a year after the merger of BDO and Equitable PCI bank, Inc. which weighed heavily on the banks balance sheets. BDO, which is the country’s second largest bank in terms of assets, saw its profits fall 24% to P1.39 billion for the first quarter from a year ago due to weak trading gains. However, bank officials said that operating costs went down by 3% to P6.3 billion despite expenses incurred during the integration which is set to be completed this September. The bank expects a 13% growth in net income this year to P7.4 billion from P6.5 billion in 2007. In particular, it targets a 27% increase in interest income to offset an expected 9% contraction in non-income interest. BDO has 658 domestic branches and more than 1,200 automated teller machines. - Paolo Luis G. Montecillo, BusinessWorld