Landbank prices new capital deal

On the back of a huge order book, Deutsche Bank prices a tight lower tier-2 bond for the Landbank of the Philippines.
Sole bookrunner Deutsche Bank priced a new $150 million 10 non-call five-year lower tier-2 subordinated bond for Landbank of the Philippines (LBP) on Thursday. Final pricing for the BB- deal came at par with a coupon of 7.25% equivalent to 252bp over US Treasuries. The notes step up to Treasury plus 378bp if not called.

The order book closed just shy of $1 billion, an oversubscription ratio of over six times, with 108 investors taking part. At that level, it is the largest ever lower tier-2 book ever built.

In terms of geography, Singapore investors accounted for approximately 46% of the offering, 16% originated from European investors, Hong Kong and Asia were each allocated 14% and UK-based investors bought the remaining 10%. By investor type, banks accounted for 31% of the offering, funds 38%, insurers 10%, and retail 21%.

The deal marks the tightest spread to sovereign of any bank issue from the Philippines. At this level, it came at a 95-100bp premium to the sovereign curve, since the Republic has a February 2011 issue trading at a 6.11% yield bid.

The deal was able to tap into the ample liquidity that has returned to a market restrained by investors reluctant to put their money to work because of the volatility in recent months.

The deal's nearest comparables are a $125 million deal by the country's largest bank, Metrobank, which completed a 10-year non-call five offering via UBS. And Equitable-PCIÆs, the Philippines' third largest bank by assets, $130 million 10-year non-call five, lower tier-2 debt issue via bookrunner UBS and joint lead Deutsche Bank.

Both of these deals were completed in 2003, so bankers estimate that new deals for EPCI and Metro would price in the region of 200bp over the sovereign.

Bank capital has been a very robust asset class in AsiaÆs international debt capital market this year, particularly in the lower tier-2 space. Indeed, investors are very receptive to the lower tier-2 structure because of the additional yield it provides as subordinated debt. Furthermore, lower tier-2 provides a relatively strong level of investor protection in the event of default of the underlying credit.

Due to the mainly agricultural based economy, LBP services mainly rural farmers. Unlike most Philippine banks, LBP has an extensive rural branch network, servicing many rural sector clients in areas where banking is either limited to rural banks or is non-existent.

It provides the services of a universal bank, however, it is officially classified as a "specialised government bank" with a universal banking license. LBP is owned by the Philippine government but it only has implied credit support, and does not enjoy the credit benefits of an explicit guarantee like other true quasi-sovereigns such as Napocor.

LBP is the fourth largest bank in the Philippines in terms of assets and is the largest government-owned bank. It is also one of the largest government-owned and/or controlled corporations in the Philippines.
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