In its meeting last week, the Monetary Board of the BSP approved Equitable-PCI’s application to expand its bond offer from $130 million to $200 million to take advantage of the market’s reaction to its offer last year.
BSP Deputy Governor Alberto Reyes Jr. told reporters that Equitable PCI bank wants to expand its initial offer because its $130 million was oversubscribed, indicating an overspill in market demand for the bank’s bond instrument.
Equitable-PCI Bank’s plan is to raise as much as P16 billion from the issuance of dollar and peso-denominated bonds to raise Tier 2 capital. The additional dollar bonds, according to Reyes, would carry the same terms as the original offer, maturing in 2012.
Equitable-PCI has appointed the Manila office of Deutsche Bank and UBS Warburg as underwriters. Reyes said the dollar bonds would be listed at the Singapore Stock Exchange.
Tier 2 is a form of long-term borrowing convertible into equity shares upon maturity. Under BSP rules, Tier 2 capital is classified into either upper or lower Tier 2, where upper Tier 2 holds a 10-year tenors and has higher priority in case of default. Lower Tier 2, on the other hand, matures in five years.
Banks are allowed to raise upper Tier 2 capital equivalent to 100 percent of their Tier 1 capital while lower Tier 2 should be equivalent to a maximum of 50 percent of their Tier 1 capital.
Tier 2 capital is favored by banks since it allows them to increase their capital without diluting existing shareholders. Unlike Tier 1 capital, however, Tier 2 capital represent subordinated loan that the bank would have to either pay back or convert into shares upon maturity.
When completed, Reyes said Equitable PCI Bank’s capital adequacy ratio would go up significantly above the minimum required ratio of 10 percent to almost 11 percent.
Equitable PCI Bank is the country’s third biggest bank in terms of assets. However, it has been in need of a capital boost after depositors pulled back heavily in the late 2000 at the height of the scandal that attended the ouster of former President Joseph Estrada.
Banks have been taking advantage of favorable market conditions by tapping Tier 2 capital since there is little potential for Tier 1 capital where existing shareholders are required to infuse more money into banks.