RCBC prices follow-on at 18% discount

The bank will raise at least $102 million from the follow-on offering once the domestic tranche is completed. Investors are attracted by a new CEO and the bank's macro-economic potential.
Rizal Commercial Bank Corp (RCBC) has completed the institutional portion of a $102 million follow-on offering that has the potential to increase its free-float from 8% to 28%.

The offer was priced in the early hours of Friday morning at Ps27 per share, which represents an 18% discount to ThursdayÆs closing price. This would be considered very wide in most other markets, but observers say the large size of the deal in relation to current liquidity and the fact that the stock has already risen 58% year to date, made the pricing quite reasonable.

Including the 15% greenshoe, the full deal-size of Ps5.67 billion ($117 million) will equal 19.5% of the existing share capital and a massive 750-days worth of trading volume.

The share price fell 5.1% during the roadshow to Ps33 on Thursday, compared with a 2.5% decline in the Philippine benchmark index, but some underperformance is quite normal when new supply is coming to market. The first day of the roadshow on March 5 also coincided with a broad sell-off in Asian equity markets which may have caused some jitters among potential investors.

The international tranche, which accounted for 146.1 million shares û or 80% of the base offering of 182.6 million shares û was 1.7 times covered with 40 investors in the book, according to a source. Some 60% of the demand came from Asia, 30% from the US and 10% from the UK, while a breakdown on the type of investors revealed 60% as being long-only funds and 40% hedge funds.

The source said ôgood qualityö investors were buying into the company amid a belief that its new CEO Lorenzo Tan, will be able to improve RCBCÆs performance. Tan, who was brought in by the controlling Yuchengco family just four weeks before the start of the roadshow, has established a reputation of being something of a star banker in the Philippines after turning around two other banks û Philippines National Bank and the United Coconut Planters Bank.

However, the deep discount to the underlying stock suggests they still feel he needs to prove himself at RCBC.

The Philippines is also perceived as a great macro economic story at the moment with falling interest rates and a recovering property market. CLSA, which was the sole international bookrunner for the RCBC offering, is four times overweight equities in the Philippines relative to the MSCI index.

And while it has previously been quite hard for international investors to get into the stock market given the low liquidity, the access is steadily improving through follow-on offerings like this one. Dubbed re-IPOs because of their full marketing roadshows and sharp increased to the existing free-float, these deals have become quite frequent over the past year and have helped put several Filipino companies on the radar screen of big international asset managers.

The latter is definitely true of RCBC, which has been virtually unknown to investors outside the Philippines until now, despite having a 45-year history and being the fifth biggest bank in the Philippines in terms of assets. The bank will be hoping that the increased attention following a two-week roadshow that took the management to London, New York, Boston and San Francisco among other places will help reduce the valuation gap to its larger peers. The final deal price values it at 1.5 times adjusted book value, which compares with 2.3 times for Banco de Oro Universal and 3.2 times for Bank of the Philippines Islands (BPI).

The companies that have sold shares through re-IPOs since the trend was started by Banco de Oro in December 2004 include Semirara Mining, Universal Robina, Megaworld and Robinsons Land. The most recent one was Filinvest, which priced a $204 million follow-on offering in late January at a modest 1.2% discount to the market price.

The new CEO has said he sees massive potential for RCBC to use its branch network to sell more consumer banking products. The bank currently has 1 million customers, but Tan told investors during the roadshow that he can grow that number further.

The second leg of TanÆs strategy centres around the bankÆs bad loan book. It has already sold Ps2.8 billion of non-performing assets, but retains Ps8 billion ($167 million) of NPLs out of a total loan book of about $2.2 billion. Most of the NPLs are believed to be secured against properties and the plan is to maximise the recovery rates and sell off property at premium prices, taking advantage of the recovering real estate market.

The domestic tranche, which will be arranged by RCBC Capital, will open today (March 19). RCBCÆs shares went into a trading halt on Friday last week and will resume trading on March 29 after the domestic sale has been completed.

The Yuchengco familyÆs stake will fall to 52% following the share sale. The second biggest shareholder is Spinnaker Capital, a fund manager focused on emerging markets, with 17%.
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