East West Banking is set to raise $106 million from Philippine IPO

East West Banking Corp, a medium-sized commercial bank in the Philippines, has set the price of its initial public offering at the bottom of the range and is set to raise Ps4.5 billion ($106 million) ahead of its listing on May 7.

The issuer, which provides banking services to retail and mid-market corporate customers under the name of EastWest Bank, priced the deal yesterday at Ps18.50 a share. The shares were marketed in a range between Ps18.50 and Ps23.50.

The 70% institutional portion, which was targeted at both international and domestic institutions, was about two times covered when the bookbuilding ended yesterday, according to sources. Of the rest, 20% will be set aside for Philippine brokers and their high-net-worth, private clients, while 10% will go to retail investors. The retail offering period will run from April 20 to 26.

There was particularly strong demand from long-only investors, who accounted for 80% of the order book, according to one source, who attributed this to the fact that East West is not expected to be that liquid, and therefore didn’t appeal to hedge funds. The long-only investors were mostly from Asia, but a few European accounts also took part. Domestic institutions contributed about 25% of the demand.

The allocation was top-heavy with 65% of the institutional tranche going to the top-10 accounts, the source noted. In all, there were about 50 orders.

Another source said that the top-10 accounts were a combination of Singapore- and Hong Kong-based long-only investors, as well as large names from Manila. The reason why the deal priced at the bottom was to make sure the large anchor orders that had come in early on were accommodated in the final allocation, he said.

The final price values the company at a 2011 price-to-book (P/B) ratio of 1.35 times, which puts it at a slight premium to the median of its closest comparables, which are trading at 1.3 times, the second source said. East West is more consumer-focused than the comps and has a high growth rate — qualities that investors seemed to like, he added.

Based on the forecast 2012 P/B multiple, East West is valued at 1.2 times, which is similar to the comps, the person said. The closet comps are other mid-cap banks in the Philippines, such as Security Bank.

The offering comprises 245.3 million shares, of which 57.5% are new. The remaining 42.5% are offered by Filinvest Development Corp, which owned 100% of the bank before the IPO. Filinvest, which has evolved from businesses established by Andrew Gotianun in 1955, incorporated East West in 1994 to diversify its business interests.

The base deal accounts for 21.7% of East West’s enlarged share capital. There is also a 15% greenshoe, made up of secondary shares, which could increase the total proceeds to as much as $121 million.

This latest Philippine offering comes after GT Capital fixed its IPO price in the top half of the range to raise $438 million. The conglomerate will be the first Philippine listing this year when it starts trading on Friday and the biggest in more than a year. GT Capital’s international tranche, which accounted for close to 60% of the total deal, was more than five times oversubscribed, according to a stock exchange filing.

Meanwhile, the local stock market is staying on a bullish course, helped by optimism about the country’s growth. The benchmark PSEi index closed 0.6% higher yesterday, which brings its year-to-date gains to nearly 19% and makes the Philippines one of the best-performing markets in Asia.

East West plans to use the net proceeds to pay for bank branch licensees, to expand its branch network and to implement IT infrastructure, the company said in a preliminary prospectus filed with the Philippine Stock Exchange in late March.

For the fourth quarter of 2011, East West ranked sixth among the Philippines’ 12 major credit card issuers in terms of credit card receivables, the bank said, citing an industry survey conducted by Credit Cards Association of the Philippines.

Deutsche Bank and J.P. Morgan are joint bookrunners and international lead managers, while Unicapital is handling the domestic portion of the deal.