citigroup-and-credit-suisse-awarded-rizal-hybrid-mandate

Citigroup and Credit Suisse awarded Rizal hybrid mandate

The leads prepare a new $100 million perpetual deal for the eighth largest lender in the Philippines.
Citigroup and Credit Suisse have been awarded the mandate for a proposed $100 million hybrid tier-1 offering for Rizal Commercial Bank. The B3/B- (Moody's/Fitch) rated notes will have a non-cumulative perpetual non-call 10-year structure, with a step up of 100bp over the initial credit spread if not called.

Rizal, the eigth largest lender in the Philippines, will kick off roadshows tomorrow in Singapore, before heading to Hong Kong the following day, and London later in the week. The leads have announced that pricing will follow the London roadshow, dependant on market conditions.

No doubt Citigroup and Credit Suisse will be looking to other recent issuers of Philippine hybrid tier-1 paper as viable comparables. MetroBank and the Development Bank of the Philippines have both sold hybrid notes this year. MetroBank, the Philippines' largest lender in terms of assets, became the first domestic bank to gain approval from the Banco Sentral ng Pilipinas (BSP) to issue a hybrid capital offering, with a $125 million deal in February. Meanwhile, DBP sold a very successful debut $130 million perpetual hybrid tier-1 Reg-S in early September.

Bankers suggest that a deal for Rizal will likely price somewhere in the middle of DBP and a new Metrobank deal. Metrobank is currently trading at around 8.50%, but is almost a year shorter to maturity and at CCC+/B2 is rated lower than Rizal. However bankers expect that a new deal for Metrobank would price around 9%. Currently, DBP is trading around the 8.30% mark.

RizalÆs perpetual bond issue is the third hybrid tier-1 transaction from a Philippine bank and is the newest bank capital-raising deal to emerge from a very active space in the Asian marketplace.

Philippine banks are trying to meet the central bank's minimum capital ratio of 10% under International Accounting Standard 39 (IAS39). IAS39 establishes new principles of classifying, measuring and disclosing financial assets and liabilities. This encompasses a total recalculation of an entity's balance sheet to market, including investment securities and trade securities.

In the past, local banks were able to sell their default loans through an SPV and book the loss over a span of 10 years. However under IAS39, this is no longer allowed. All losses must now be recognised in the year that they are incurred.

As at July, Rizal had a capital adequacy ratio (CAR) of 14.98%, versus an equity to assets ratio of around 7%. The sale of the bonds will increase its CAR to 18.55%, however that number will more than likely decline as the bank adopts the international accounting criteria.

Founded in the 1960s, Rizal has consolidated assets worth Ps185 billion ($3.5 million) with a network of 294 branches and 252 ATMs. It is majority owned by the Yuchengco Family
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