Moody’s said it is retaining its D-bank financial strength rating and D-bank financial strength rating of Equitable PCI Bank, indicating that the rating agency’s belief that the transaction is unlikely to have a significant impact on either bank’s financial fundamentals.
However, Moody’s said it is unclear whether further Corporate actions with potential rating implications could arise from this transaction over the longer term.
Moody’s analyst John Tham said yesterday that the credit ratings of Banco de Oro and Equitable PCI were both currently on review for possible downgrade together with the Philippines’ sovereign ratings but the review did not reflect bank-specific issues.
Banco de Oro will buy a 25.8-percent equity stake in Equitable PCI from the Social Security System. The deal, valued at P14 billion, would involve an initial cash outlay of P1 billion. The balance of P13 billion would be paid in the form of a 6.5-year zero-coupon bond, with the expectation that this debt would be refinanced with more permanent capital in the near future.
"Moody’s expects the financially sound Banco de Oro to weather the cost of the transaction, given the relatively small cash outlay involved, and its access to funding from committed major shareholders as well as the capital market," Tham pointed out. "The realization of synergies between the banks is unlikely in the near term given the autonomous operations of the two banks."
Tham said Banco de Oro is the Philippines’ ninth largest bank by assets, with assets of P135.2 billion as of Sept. 19, 2003. On the other hand, Equitable-PCI Bank is the country’s third largest lender, with reported assets of P288.2 billion as of Sept. 19, 2003. – Des Ferriols