Security Bank cracks open bond investors

Debut $300m offering by the Philippine bank comes at a small premium to its nearest peer, Rizal Commercial Banking Corporation.

Security Bank, the Philippines' tenth largest bank by assets, completed its maiden offshore bond on Tuesday, offering a small new issue premium to its nearest comparable, Rizal Commercial Banking Corporation (RCBC).

The BB+/BB rated issuer priced a $300 million five-year Reg S deal at par with a coupon and re-offer yield of 3.95%. This was 25bp inside initial guidance around the 4.2% area and the tight end of final guidance of 3.95% to 4%. 

The order book closed with about $1.75 billion in demand from 187 accounts, of which 58% came from the Philippines, 35% Asia and 7% Europe. By investor type banks took 50%, funds 38%, private banks 7% and pension funds 5%.

High demand enabled the deal to price not far back from RCBC's 4.25% January 2020 bond. This was bid at 101.875% at the time of pricing, equating to a yield of 3.833%.

Security Bank therefore offered a yield pick up of 11.7bp. Joint global co-ordinators were ANZ, Deutsche Bank and UBS, with Development Bank of the Philippines and SB Capital acting as domestic leads. 

Philippines credits have proved to be remarkably stable during the recent bout of volatility and bankers say they have been viewed as a safe haven by defensive investors. RCBC, for example, priced its own $200 million five-year deal on January 12 and it has not moved far from its par issue price.

On its first day of trading, the Ba2-rated transaction initially dipped slightly below par before ending the day at 100.75%/101.125%. It has stayed at that level pretty much ever since. 

Security Bank is relatively unusual by Philippines standards given that it does not sit under a conglomerate, although it is owned by a family - the Dys. It also has some of the best credit metrics of the domestic banking sector because earnings have historically been driven by investment income, which means its NPL levels are very low and its capital adequacy ratios (CAR) high. 

At the end of the third quarter, gross NPLs stood at 0.8%, while its 2014 CAR is estimated to stand at 18.2% of which tier 1 accounts for about 14.4%. 

Its first nine months of earnings showed a 54% jump year-on-year, although analysts attributed much of the outperformance to one-off gains from the sale of investment securities. Hold-to-maturity investment securities formed a large part of the bank's asset base at the end of the third quarter, with investment securities as a whole accounting for 23.7%, with loans on 50.6%, cash and interbank assets 24.1% and other 1.7%. 

Where its corporate loan book is concerned, the bank targets the Filipino-Chinese community, with 54% of lending to large scale enterprises, 40% to SME's and mid-sized enterprises and the remaining 6% to retail.

The bank plans to change this mix and is expanding fast to try and grow its consumer loan book from 6% to more than 30% of the total within the next couple of years. It is, for example, planning to open about 20 new branches a year, building on its current 276 branch network.

Equity investors have so far rewarded these ambitions with strong share price growth. During 2014, Security Bank's share price rose 31% beating the Philippines Stock Exchange Index by 9%. 

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