PNB mulls $140-M bonds to boost capital

The Philippine National Bank (PNB) will issue up to $140 million in unsecured subordinated notes next month to improve its capital adequacy and boost its capital base.

In a disclosure to the Philippine Stock Exchange, the country’s fourth largest lender said it had tapped JP Morgan Securities Ltd. as the lead arranger and bookbuilder for the issue, which would contribute to PNB’s tier 2 capital buildup.

The bank said the bonds, with will mature on 2014 with a call option at the end of the fifth year, carry an indicative yield of between nine to 9.5 percent.

"To provide flexibility to issue a tap issue of long-term bonds, the maturity date for the original issue will be more than 10 years," PNB said.

Should PNB fails to exercise the call option, it will pay a step-up interest rate which is the higher of eight 100 basis points above the original coupon rate or 50 percent of the original credit spread.

The bonds will be listed at the Singapore Stock Exchange with the underwriting spread at one percent of $140 million, and a fixed expense payable to JP Morgan of $420,000.

PNB will still undertake a roadshow before the formal issuance of the notes.

The bank reported earlier that its non-performing loans (NPL) stood at P48.06 billion or 50 percent of total loan portfolio as of September compared to 49 percent in June. It has also set aside P16.43 billion for loan-loss provisioning.

It must dispose of P48 billion of NPLs and another P30 billion of real and other properties owned or acquired (ROPOA) in the next five years if it wants to remain competitive.

"The NPL and ROPOA is the bank’s long term problem. We must match the sale of our problems with our profits," Lorenzo Tan, PNB president and chief executive officer earlier said.

Last year, its NPL ratio to the bank’s total loan portfolio reached 50.1 percent and bank officials are looking to reduce this further to 37 percent by end 2003.

To achieve its targeted net income this year, the bank must also dispose of some P3.5 billion in ROPOA or an equivalent to P1 billion in gross profits. Last year, PNB sold P1.85 billion of bad assets, earning gross profits of P800 million.

PNB posted a net income of P127 million in the first nine months of 2003, reversing a net loss of P1.52 billion a year earlier. – with Reuters