RCBC to offer $130M in debt notes

Rizal Commercial Banking Corp. of the Yuchengco group has obtained a mandate from its board to offer as much as $130 million worth of hybrid notes eligible as core or tier 1 capital under the Basel 3 capital adequacy ratio (CAR) framework.

In a disclosure to the Philippine Stock Exchange Monday, RCBC said the move was part of the bank’s regulatory compliance to the Basel 3 capital guidelines set by the Bangko Sentral ng Pilipinas.

The board also issued authority to tap financial and other institutions to offer, issue, service and redeem the hybrid notes, including Morgan Stanley & Co. International Plc as dealer manager. Bank of New York was named trustee and agent bank.

The issuance is still subject to approval from the BSP, the disclosure said.

Asked about the fund-raising, RCBC head of strategic initiatives John Deveras said the issuance of Basel 3-compliant capital notes would be launched “depending on market conditions.”

The issuance is part of RCBC’s $430-million capital-raising program to prepare for stringent capital adequacy requirements under the Basel 3 framework, under which complex reforms have been designed to improve the ability of banks to absorb losses, extend the coverage of financial risks and establish stronger firewalls during periods of stress.

Of the projected capital-raising requirement, $200 million has so far been raised by RCBC. It earlier sold $100 million in additional equity to the International Finance Corp. and then raised another $100 million from the stock market through an overnight equity placement at P64 a share.

The $130-million proposed hybrid capital notes can qualify as tier 1 capital because of certain features, like loss absorption through principal writedown once the BSP determines that the bank has reached the point of non-viability, Deveras said.

The bank will have the option to redeem the hybrid notes after five years, and again after 10 years, he added.

RCBC ended last year with P42.21 billion worth of capital funds. Its capital adequacy ratio, based on Basel 2 framework, stood at 17.61 percent of risk assets versus the minimum regulatory requirement of 10 percent. Core, or tier 1, ratio of 13.19 percent also exceeded the 6-percent requirement.

The bank grew its net profit last year by 24 percent to P6.21 billion on higher interest and fee-based income, alongside hefty Treasury gains. This translated to a return on equity of 15.52 percent, while return on assets stood at 1.77 percent.