Moody’s thumbs up Cathay’s entry in RCBC

MANILA, Philippines - Moody’s Investors Service said that the planned entry of Cathay Life Insurance Co. Ltd. into the Rizal Commercial Banking Corp. (RCBC) was “credit positive.”

Last week, RCBC with a credit rating of Ba2 positive, D-/ba3 positive1, said that Cathay Life (Baa2 positive) is acquiring 20-percent equity in RCBC via a private placement.

“Such a transaction would be credit positive for RCBC because it would improve its core capitalization and loss-absorbing buffers, while simultaneously enhancing its ability to capture the credit growth that the bank has planned for 2014 and 2015,” Alka Anbarasu, Moody’s assistant vice president and analyst, said.

Based on the proposed transaction, Cathay Life would subscribe to 124.3 million new shares of RCBC for P7.96 billion ($185 million) and would acquire secondary shares from RCBC’s current shareholders Hexagon Investment B.V., an entity controlled by CVC Asia Pacific Ltd. (unrated) and International Financial Corp. (Aaa stable), for P9.96 billion ($230 million).

The exclusivity period between the companies expires on Dec. 31, 2014.

Following Cathay Life’s subscription to the new shares, RCBC’s reported pro forma core equity Tier 1 ratio (CET1) as of June 2014 would increase to 13.5 percent from 10.9 percent, bringing its capitalization in line with some of its largest Philippine peers and significantly above the central bank’s minimum CET1 requirement under Basel III of 8.5 percent (including a 2.5-percent capital conservation buffer).

Strategically, the affiliation with Cathay Life, a wholly owned subsidiary of Cathay Financial Holding Co. Ltd. (Baa3 positive), would provide RCBC with certain product and cross-selling benefits by leveraging Cathay Financial’s corporate relationships in Taiwan, China and the countries comprising the Association of Southeast Asian Nations.

However, it is unclear whether Cathay Life’s 20-percent stake in RCBC will result in the insurer playing a more active role in the bank’s strategy and day-to-day management.