Banco de Oro debuts in dollar market

Bank issues first senior fixed rate bond from the Philippines since the Asian financial crisis.

One of the Philippines fastest growing and most dynamic banks made its debut in the international bond markets yesterday (Thursday) with a $150 million issue via UBS.

Ba2 rated Banco de Oro (BDO) priced a five non-put three transaction at 99.331% on a coupon of 6.5% to yield 6.75%. This equates to a spread of 449bp over Treasuries, or 414bp over Libor. Fees were 75bp.

At this level, the Sy family owned bank came 151bp over the sovereign, which has an October 2026 bond puttable in 2006 outstanding. On a like-for-like basis, it also came about 8bp to 9bp through its own parent, unlisted and unrated SM Investments (SMI), the holding company of the SM group.

In October 2002, SMI issued a $300 million five-year Eurobond with an 8% coupon at an 80bp premium to the sovereign. Over the past nine months, however, corporate paper has underperformed the sovereign and the differential between the two has widened.

Having embarked on roadshows in Manila on Tuesday, books for BDO's deal were closed ahead of European presentations after orders of $750 million were accumulated. This is a relatively large book for a small deal and especially given that it is in one of the few Asian countries on a downwards ratings trajectory.

About 53 investors participated and no one account was allocated more than $10 million in paper. By geography, the book split 43% Singapore, 31% Philippines, 16% Hong Kong, 8% Europe, 1% Australia and 1% Indonesia. By investor type, private banks took 50%, asset managers 32%, banks 15% and insurance companies 3%.

One of the most striking aspects of the deal is the high private banking participation, which is hardly surprising given the strong reputation of the Sy brand.

Unlike the rest of the Philippines' banking sector, BDO appears to have been able to combine high growth with stable credit quality.

Out of 41 banks in the Philippines, BDO is one of only two with an NPL ratio below 10% and falling. The other is tiny Asia United. As of May this year, BDO's NPL ratio stood at 7.4% compared to a 15.41% average for the domestic banking sector.

Over the course of the first six months, net income also shot up 30% to Ps654.9 million. During 2002, the bank catapulted itself to the tenth largest in the country after the purchase of 57 First E-Corp branches from Metro Pacific. The previous year it also listed on the Philippines Stock Exchange, with a Ps1.8 billion ($38 million) IPO that ranked larger than all new listings in the Philippines since 1997 - combined.

Observers also conclude that its debt deal benefited from the surprise upgrade of Russia's credit rating from Ba2 to Baa3 by Moody's, which gave all emerging markets paper a lift.