Banco de Oro to raise P8.3B for purchase of SSS stake in EPCIB

Banco de Oro Universal Bank (BDO) will raise P8.3 billion through a combination debt and rights offerings for the acquisition cost of the 27 percent shareholdings of the Social Security System (SSS) in Equitable PCI Bank.

A top BDO official said the bank’s board of directors and major stakeholders had already given their approval of the proposed capital raising schemes.

BDO president Nestor V. Tan said that half of the fund-raising activity will be in the form of a debt issue in the international market through several banks similar to the $150-million senior notes the bank raised last year.

"We will tap several banks either as underwriters or bookrunners.

Several factors will dictate on whether it will be a senior note and Tier 2 capital raising activity, or just Tier 2," Tan told reporters yesterday.

The amount was the agreed rate set by the SSS, which indicated that payments should be in upfront cash and not in tranches.

"We are ready and just waiting for the SSS to proceed with the sale in view of the positive legal opinion given by the Department of Justice (DOJ) regarding the legality of the sale and the sale procedure," Tan said, adding that they are prepared to sign the deal before the June 30 deadline.

In case the SSS seeks an extension, Tan said that they are open "as long as there is a good reason."

In the event that the sale fails to push through, the bank still has several options to grow organically, although it also has the option to go to court to force the SSS to honor the sale contract.

The sale was earlier stalled when certain quarters objected to the sale, which they claimed did not go through a public bidding exercise. Oppositors to the sale also said that the sale would result in losses by the state pension fund, which was already reeling from huge losses in poor and questionable investments by its previous administration.

But SSS officials defended the sale stating that it was the best option to raise funds rather than wait for an improvement in the capital markets.

SSS president and chief executive officer Corazon de la Paz said that the money raised from the sale could be put in better investments that could result in increased financial health for the pension fund.

Another option open to BDO was to continue the debt or rights issue for funds to acquire more branch licenses through the Philippine Deposit Insurance Corp. (PDIC), and take a crack at acquiring China Bank Corp., of which 37 percent are controlled by the SM Group, the majority owners of BDO.

Bank officials admitted that the acquisition of branch licenses is a clear option while the acquisition of China Bank "will have to be seriously reviewed since it (China Bank) is doing very well on its own."

"But we are not running out of options," Tan stressed.

The merger of BdO and Equitable PCI Bank could take place should BDO acquire the shares held by the SSS. That would result in a universal bank whose size would rank second only to industry leader Metropolitan Bank and Trust Corp. (Metrobank). The new merged bank would have assets worth over P500 billion as against P400 billion in assets of the current second running Bank of the Philippine Islands (BPI).

BdO said that both banks have strengths that can reinforce each other including consumer banking and corporate products to remittances and domestic distribution networks.

Officials refused to comment on the prospects of a three-way merger including China Bank which, when consummated, would result in the biggest local bank in the Philippines.

Meanwhile, BdO is looking at a full-year net income growth of 20 percent, or from P1.5 billion in 2003 to P1.8 billion this year. In 2002, it registered an impressive P1 billion in profit, only among a handful of commercial banks that breached the one-billion peso mark in that year.

In the first three months of the year alone, net income grew by 51 percent to P403 million while resources grew by 22 percent to P154 billion. Deposits grew by 13 percent to P104 billion year-on-year and return on equity (ROE) stood at 22 percent.