RCBC plans to dispose of P8B worth of bad assets

After raising an estimated P5.67 billion ($117 million) from its re-IPO exercise, the Rizal Commercial Banking Corp. (RCBC) is looking at improving its loan portfolio reportedly amounting to $2.2 billion (P107.8 billion).

It has already disposed of P2.8 billion worth of non-performing assets (NPAs). However, the Yuchengco-led commercial bank still retains P8-billion ($167 million) of non-performing loans (NPLs).

"Most of the NPLs are believed to be secured against properties and the plan is to maximize the recovery rates and sell off property at premium prices, taking advantage of the recovering real estate market," bank sources said.

Prices in the property sector has risen to a point that some banks prefer to directly tap the direct auction market instead of tapping special purpose vehicles (SPVs). SPVs tend to get the deals based on huge discounted rates of up to 80 percent of face-value.

Banks sources added that phase one of the RCBC’s strategy is to raise additional capital from the share sale. The next step is to review its non-performing assets (NPAs).

"What has to be established is how much must be raised before July from both the share sale and the disposition of the NPAs," they added. July is the deadline set by the Bangko Sentral ng Pilipinas (BSP) on universal and commercial banks to fully implement changes and capital build-ups based on the Basel II framework.

Meanwhile, RCBC hopes to raise at least $102 million (P4.93 billion) from the follow-on offering of 146 million shares in the international market once the domestic tranche of 36.5 million is completed. The offering reportedly has the potential to increase its free-float from eight percent to 28.

The large size of the deal in relation to current liquidity while the stock has risen 58-percent year to date, made the pricing quite reasonable.

Including the 15-percent greenshoe, the full deal-size of P5.67 billion ($117 million) will equal 19.5 percent of the existing share capital and a massive 750 days worth of trading volume.

The international tranche, which accounted for 146.1 million shares or 80 percent of the base offering of 182.6 million shares, was almost two times covered with 40 investors in the book.

Some 60 percent of the demand came from Asia, 30 percent from the US and 10 percent from the UK, while a breakdown on the type of investors revealed 60-percent long-term funds and 40-percent hedge funds.

The Philippines is perceived as a great macro economic story at the moment with falling interest rates, improving fiscal position, and a recovering property market. CLSA, which was the sole international bookrunner for the RCBC offering, is four times overweight equities in the Philippines relative to the MSCI index.

And while it has previously been quite hard for international investors to get into the stock market given the low liquidity, the access is steadily improving through follow-on offerings like this one.

Dubbed re-IPOs because of their full marketing roadshows and sharp increased to the existing free-float, these deals have become quite frequent over the past year and have helped put several Filipino companies on the radar screen of big international asset managers.

The latter is definitely true of RCBC, which has been virtually unknown to investors outside the Philippines until now, despite having a 45-year history and being the fifth biggest bank in the Philippines in terms of assets. The bank will be hoping that the increased attention following a two-week roadshow that took the management to London, New York, Boston and San Francisco among other places will help reduce the valuation gap to its larger peers.

The companies that have sold shares through re-IPOs since the trend was started by Banco de Oro Universal Bank in December 2004-include Semirara Mining, Universal Robina, Megaworld and Robinsons Land. The most recent one was Filinvest, which priced a $204-million follow-on offering in late January at a modest 1.2-percent discount to the market price.

RCBC’s shares went into a trading halt on Friday last week and will resume trading on March 29 after the domestic sale has been completed.

The Yuchengco family’s stake will fall to 52 percent following the share sale.The second biggest shareholder is Spinnaker Capital, a fund manager focused on emerging markets, with 17 percent. — Ted Torres