Banco de Oro notes fetch 8.5%

MANILA, Philippines - Banco de Oro Unibank, Inc. of SM mall magnate Henry Sy would be paying an 8.5% interest on its Tier 2 debt instrument, which it said offers investors a premium over comparable five-year benchmark bonds. The Sy-owned bank is selling P5 billion worth of Tier 2 notes, which is supplementary capital that ranks behind claims by depositors and other senior creditors in case of solvency, to beef up its capital base as it consolidates its recently acquired businesses, officials said. Capital raised from the debt issue would also be used to refinance the bank’s dollar-denominated unsecured subordinated notes to the tune of $200 million and which could be redeemed by July 1, according to the bank’s prospectus. Five-year benchmark bonds were last traded in the secondary market at 8.2% Monday, so that BDO’s pricing should be a come-on for investors, bank officials said. "The five-year FXTN [government bonds] is only on the low 8%. So the 8.5% is already carrying a premium," said Pedro M. Florescio III, the bank’s executive vice president and treasurer. "It’s a very good yield pick-up even if you consider it a subordinated debt," said Consuelo D. Garcia, managing director and head of financial markets of ING Bank N.V., one of the lead arrangers. The capital-raising activity was being made a year after BDO acquired Equitable PCI Bank, Inc. — a merger that earlier weighed on the bank’s balance sheet. The bank, now the country’s second largest by assets, saw its first quarter net profit fall 24% to P1.34 billion from a year ago due to weak trading gains. Operating costs, however, decreased by 3% to P6.3 billion despite expenses incurred for integration, which is expected to be completed by September this year. BDO is also folding in its subsidiaries, Equitable Savings Bank and BDO Elite Savings Bank (formerly American Express Bank Philippines), to have "one bank with one focus," said BDO President Nestor V. Tan. The consolidation would boost the bank’s network of branches to 703 from 665 domestic branches, Mr. Tan told BusinessWorld . The bank targets a 13% growth in net income this year to P7.4 billion from P6.57 billion in 2007. In particular, it targets a 27% growth in interest income to offset an expected 9% contraction in non-interest income. With the Tier 2 offer, its capital adequacy ratio (CAR) — a measure of a bank’s financial health, would settle around 12%-13% by yearend from 15.2% last year. Stricter capital rules under Basel 2, as the bank takes in more risk assets such as loans, would weigh on the bank’s CAR, Mr. Tan said. - Maria Eloisa I. Calderon, BusinessWorld