BDO to redeem debt notes worth P10B

The country’s largest bank, Banco de Oro Unibank, will redeem by the end of May P10 billion worth of debt notes qualifying as tier 2 capital.

By exercising its call option on the tier 2 notes this year, the banking arm of tycoon Henry Sy will avoid paying steeper interests in servicing the notes until maturity in 2018.

The BDO, which raised $1-billion in fresh core or tier 1 capital from a stock rights offering last year, is seen in a good position to retire these tier 2 notes.

In a disclosure to the Philippine Stock Exchange on Thursday, BDO said it would exercise its option to redeem the P10 billion tier 2 notes. The notes will be redeemed from investors for cash at a redemption price equal to the face value plus accrued interest as of but excluding May 31 this year.

The notes, which were issued in 2008, bear an interest of 8.5 percent a year for the first five years. Under the issue terms, the rate will increase after the fifth year unless redeemed by the bank. This step-up feature makes it costly for the bank not to redeem the 10-year notes on the fifth year (2013), which becomes a “synthetic” maturity.

BDO’s $1-billion stock rights offering, which was completed last year, made it the largest bank in the country not only in terms of assets but also in terms of capital base.

As of the end of 2012, BDO’s total equity jumped by 62 percent to P157.3 billion on account of the stock rights issuance as well as the bank’s profitable operations.

BDO’s net profit grew by 36 percent to P14.3 billion last year, exceeding its profit guidance of P12.5 billion, as trading gains added to the 7-percent growth in net interest income. Return on equity stood at 11.5 percent.

Total resources climbed by 13 percent to P1.2 trillion last year as gross customer loans and investment securities expanded by 15 percent and 26 percent, respectively. The asset growth was funded by a 9- percent increase in total deposits and the P43.1 billion raised through the July 2012 rights offering.

By boosting its core capital, the bank built a comfortable buffer, preparing it for the implementation of the stringent Basel 3 capital requirements in January 2014.

Basel 3 introduces a complex package of reforms designed to improve the ability of banks to absorb losses, extend the coverage of financial risks and build stronger firewalls against periods of stress. Doris C. Dumlao