Double mandate for Equitable PCI

The continuing saga of the Equitable PCI sale took a new turn when the board recently decided to split the mandate for its sale.

In an unusual – some might say unprecedented – move, the board of the bank awarded ING Barings the sole mandate to look for a foreign partner, and JP Morgan the sole mandate to look for a domestic merger partner.

However, it is believed that the board of the bank is now somewhat ambivalent about the whole sale process. Rumours of the sale first hotted up in the last days of Estrada’s administration. A loss of confidence hit the bank and rumours reckoned it lost as much as Ps30 billion ($573.61 million) of deposits in a matter of weeks. Equitable PCI sought to quell the loss of confidence and announced it had only lost Ps3.2 billion. Equitable PCI's deposit base has historically been around Ps160 billion. The loss of confidence led the bank to announce it was looking for a new partner.

However, since the elevation of Gloria Macapagal Arroyo to the Philippines Presidency, the loss of confidence appears to have subsided and the deposit base stabilized. This may have taken the time-pressure out of the sale. Hence the board’s ambivalence.

It is known that Equitable PCI has been looking for a foreign strategic partner for about a year – without success. It had previously hired Lehman Brothers and Salomon Smith Barney to scout for potential partners. Ideally, it would like ING Barings to succeed this time around, and sell the new partner the 10% owned by Equitable Securities and 10% of new equity. A number of parties have expressed interest (see related articles).

However, if a foreign buyer does not come forward, the Central Bank may encourage a domestic merger. It currently has a large outstanding loan to PNB and the last thing it wants is to have to help out a second major bank.

The most likely merger contender in this situation is BPI. This would create a new megabank, with a quarter of the assets in the Philippine banking system. However, this would be quite a political merger, as BPI is controlled by the Ayala family, a member of the Spanish minority which makes up around 3% of the country’s population.

On the positive side, BPI has a foreign partner – DBS of Singapore – which owns 20%, and can bring technical expertise to the transaction. However, some local analysts remain dubious as to whether anyone will be willing to pay up to get the deal done.

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