International Finance Corp., the private sector funding arm of the World Bank, raised its interest in Yuchengco-led Rizal Commercial Banking Corp. by infusing $100 million in fresh capital and separately buying P4.8 billion worth of the bank’s bad assets.
IFC raised its equity interest in RCBC to about 12 percent from 6.4 percent with the purchase of the additional shares priced at P58 each. The private placement transaction valued RCBC at 1.7 times the bank’s book value. Two years ago, IFC acquired an initial stake in RCBC at P29 a share.
“They still believe in our growth story,” RCBC president Lorenzo Tan said in a briefing Friday, referring to IFC’s increase in investment in RCBC.
Aside from buying more shares in RCBC, IFC also led a consortium that took out P4.8 billion of the bank’s assets through a special purpose company called Philippine Asset Growth One Inc. (Pago).
The transaction will reduce the bank’s nonperforming loan ratio to 0.62 percent from 1.76 percent. Tan said this also marked the unloading of the remaining bad loans incurred during the Asian currency crisis of 1997, when the banking system was hit by a wave of corporate loan defaults.
“While we’re building the bank, we are also cleaning up Asian crisis loans,” Tan said. “Our plane is now lighter, so we can fly faster.”
The unloading of P4.8 billion in bad assets, Tan said, would free up P750 million of capital, which RCBC could use to lend to small and medium enterprises, consumer and microfinance sectors.
The capital buildup is part of RCBC’s preparation to comply with the stringent capital adequacy requirements under Basel 3.
“In light of Basel 3, we want to help Philippine banks do their job in helping Philippine development, in the case of RCBC, focusing on the SME sector, helping in job creation,” IFC country representative Jesse Ang said.
Ang said job creation was a key area that the Philippine government would need to work on and helping SMEs would be part of this.
RCBC needs to raise a total of $430 million in fresh capital to comply with Basel 3 requirements by the January 2014 deadline set by the Bangko Sentral ng Pilipinas, RCBC head of strategic initiatives John Deveras said.
After completing the $100-million private placement deal with IFC, RCBC plans to raise another $130 million from the issuance of Basel 3-compliant hybrid notes, which are perpetual bonds with call options on the fifth and 10th year.