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Development Bank of the Philippines prices debut Tier-1 deal

Barclays and Deutsche Bank price a $130 million perpetual hybrid Tier-1 Reg S deal, the second only offshore deal from the Philippines.
Barclays and Deutsche Bank have completed an inaugural offshore offering for the Development Bank of the Philippines (DBP) with a $130 million perpetual hybrid Tier-1 Reg S deal. The deal priced at the tight end of revised guidance.

The leads kicked off roadshows last Wednesday with an initial guidance in the 8.88% area but, as demand grew following roadshows in Singapore, Hong Kong and London last week, the level was revised to 8.38%.

Final pricing on the B+/BB- (Fitch) rated perpetual non-call 10 year offering came at par with a coupon of 8.375%, equivalent to a spread of 360.2bp over 10-year US Treasuries. The notes step up to 487.8 over three-month Libor if not called.

DBP's perpetual bond issue is only the second hybrid Tier-1 transaction from a Philippine bank after Metrobank and the newest bank capital-raising deal to come from a very active space in the Asian marketplace.

The offering was 13-times oversubscribed, drawing a final order book of $1.7 billion. The books were said to have peaked at $1.9 billion, with some falling away as the price tightened. The deal closed with around 100 accounts taking part.

Geographically, Singapore, Hong Kong and the rest of Asia accounted for 21% each, 23% went to UK investors, 11% to Europe and the remaining 3% to offshore US books.

In terms of investor type, fund and asset managers picked up 35%, banks 25%, public banks 31%, insurers 5% and other accounts 4%.

Despite the huge demand, the borrower was only able to tap the market for the target $130 million as that was the final amount approved by the domestic banking and corporate regulators.

The leads were able to take advantage of an improving market environment to ensure tighter pricing. Global debt markets have improved markedly during the first week of September and recent transactions, especially a spate of bank capital offerings from India and Korea, have enjoyed solid demand and have performed steadily in secondary trading.

The deal also benefited from the fact that the issuers is 100% owned by the Philippine government and as such carries the implicit support of the sovereign. Additionally, in light of the sovereignÆs offshore bond exchange program, an expected reduction in liquidity of outstanding Philippine sovereign bonds provided further impetus for investor participation.

Indeed, pricing looks aggressive compared with commercial bank MetrobankÆs Tier-1 transaction, the only existing Philippine Tier-1 deal.

That deal is trading at 8.60%, but is a year shorter to maturity and at CCC+/B2 rated lower than DBP. However, bankers would expect a new Tier-1 from Metrobank to price at around 9%, meaning that DBP prices almost 70bp inside of its curve on a like for like basis.

Proceeds from the sale of the bonds will go toward developmental loans and strengthening DBP's regulatory capital base, which the bank intends to sustain at about 20%.

DBP has a Tier-1 CAR of 18.7%, and a total CAR of 21.9%. The sale of the bonds will add about 5% to that level, however with the risk weighting of its investment in dollar denominated sovereign securities expected to rise from nil to 100% under new accords of Basel II, its CAR is estimated to fall 4%.

Founded in the 1930s, DBP is the countryÆs seventh largest bank with 77 branches and Ps210 billion ($4 billion) in assets.

DBP is principally involved in lending to infrastructure and logistics, social structure and environment projects. Its commercial lending is primarily targeted to the top 150 domestic corporates for expansion and upgrading projects, but is also involved in SME and micro-finance. Its development loans are funded via bilateral or multi-lateral agencies.

DBP has performed well recently; it has and RoA of 1.8% and a return on capital of 14%, which is second among the domestic lenders.
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