The B3/B- (Moody's/Fitch) rated notes have a non-cumulative perpetual non-call 10-year structure, with a step up of 100bp over the initial credit spread if not called.
Final pricing came in at 99.221% on a semi-annual coupon of 9.875% giving a yield of 10%. On a spread basis that equates to 10-year US Treasuries plus 522.5bp or mid-swaps plus 468bp. The offering was 1.6 times oversubscribed, drawing a final order book of $160 million. The deal closed with around 40 accounts taking part. Geographically, Asian accounts bought 89% of the bonds, with the rest going to Europe. In terms of investor type, private banks and retail accounts bought 26%, banks bought 38% fund and asset managers picked up 36%.
In terms of comparables, the leads quoted MetroBank and the Development Bank of the Philippines, which have both sold hybrid notes this year. MetroBank, the Philippines' largest lender in terms of assets, became the first domestic bank to issue a hybrid capital offering, with a $125 million deal in February. DBP sold a very successful debut $130 million perpetual hybrid tier-1 Reg-S in early September.
MetrobankÆs deal was quoted at a bid/offer of $103.875 to $104.375, a yield of 8.41% to 8.33%, however it is almost nine months shorter to maturity. DBP, rated B+/BB- (S&P/Fitch) is trading at a bid offer of $101.875 to $102.375, a yield of 8.10% to 8.02%. However, DBP benefits from the fact that it is 100% owned by the Philippine government and as such carries the implicit support of the sovereign.
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.