IFC mulls conversion into equity of $20-M loan to Banco de Oro

Banco de Oro Universal Bank (BDO) and the International Finance Corp. (IFC) are holding talks to determine the conversion and the valuation of a $20-million convertible loan extended by the IFC last month.

IFC, the investment arm of the World Bank, signed May 7 a non-binding letter of intent (LOI) for a $20-million convertible loan to BDO.

The IFC has the option under the LOI to convert the loan into common shares. However, the two entities must first agree on the valuation process to determine the value of each share.

There are a lot of details that have to be worked out before the IFC can hold equity in the bank, industry sources said. It is also possible that IFC will not convert and will keep the $20 million as a loan.

Bank officials said there are indications that IFC will take an equity position in the bank.

The IFC has committed investments of up to $150 million per year in the next three years. One of the preferred sectors that it would take interest in is the financial sector. It had already made investments in the Planters Development Bank, a thrift and savings bank specializing in lending to the small and medium enterprises as well as microfinance.

Last month, the Henry Sy-led expanded commercial bank issued a total of 89 million shares composed of 32 million primary and 56 million secondary shares priced at P20.80 per share. The issuance represents roughly 10 percent of the bank’s total equity worth P1.85 billion. The public listing will be held May 21.

The IFC loan is qualified for a Tier 2 capital under the regulations of the Bangko Sentral ng Pilipinas (BSP) which allow the bank to expand its operations through new capital infusion from sources like the IFC.

"This will be one of the first instances of a Tier 2 instrument, that of allowing the IFC to deploy a fairly new capital instrument in the local market," BDO officials said.

After a three-year delay, the BDO finally went public making it the first financial institution to do so this year after the economy showed signs of recovery. It would thus allow he bank to undertake an aggressive expansion program funded by new capital from its strategic partners, new borrowings and earnings in the initial public offering (IPO).

Bank president Leonardo Tan was earlier quoted as saying that they would be expanding their consumer banking business specifically in the credit card and property management estate business. "We will be putting up BDO Card Co. and a property management group that will manage its real and other properties owned and acquired (ROPOA) worth P4.5 billion," Tan added.

In the first quarter of the year, BDO registered a net income of P130 million. Its full year income target is P979 million. It will be incurring a non-recurring gain of P383 million from the IPO against a one-time expense of P600 million for loan provisioning.