Moody’s praises RCBC’s property divestment

MANILA, Philippines - The divestment of Rizal Commercial Banking Corp. (RCBC) in its property companies would be “credit positive” for the Yuchengco-owned bank as it would strengthen its capital position, according to New York-based Moody’s Investors Service.

RCBC concluded last week share purchase agreements to sell its 25 percent equity stake in RCBC Realty Corp. (RRC) and its 49 percent holdings in RCBC Land Inc. (RLI) for a total of P4.55 billion or approximately $103.9 million.

“These proactive non-core asset sales are credit positive for RCBC because they free up capital for business growth and higher capital requirements under the new Basel III regime,” Moody’s said.

The credit-rating firm said the share sale would enable RCBC’s capital ratio to surpass the average banking industry’s level.

“Based on RCBC’s June 2013 financials, we expect its consolidated Tier 1 capital ratio to increase to 16.8 percent pro forma for the share sale, from 16.2 percent, well above the average 15 percent ratio among our rated Philippine banks at the end of June,” it said.

“Although the increase in capitalization is not material, it removes the possibility that the bank’s Tier 1 capital may decline because of the punitive deduction that banks must apply to their Tier 1 capital for their equity investments in non-financial entities beginning Jan. 1, 2014,” Moody’s further noted.

The credit rating agency pointed out that the bank does not dispose of its stakes in RRC and RLI by Jan. 1, 2014, “its Tier 1 capital ratio will decline to 15.2 percent under the new capital regime, based on June 2013 financials.”

Under the agreements, Pan Malayan Management and Investment Corp., another subsidiary of Yuchengco Group, will purchase a 7.66 percent stake in RRC and the entire 49 percent stake in RLI; House of Investments, Inc. will purchase a 10 percent stake in RRC; and RLI will purchase the remaining 7.34 percent stake in RRC.

“These divestments continue the bank’s strategy of monetizing its non-core assets and deploying capital to fund its core lending business,” Moody’s said.