Security Bank to offer 602M in preferred shares

Security Bank is set to offer to existing shareholders an initial tranche of 602.83 million voting preferred shares in early 2014 to gain more headroom given the existing limit on foreign ownership.

In a disclosure to the Philippine Stock Exchange Thursday, Security Bank said it would offer one voting preferred share for every one common share held by existing stockholders after the distribution of a 20-percent stock dividend this year.

“The issuance of voting preferred shares is part of the bank’s capital program. It provides incremental equity for the bank. It also directly improves the trading dynamics for the bank’s common shareholders,” the disclosure said.

The voting preferred shares will be non-cumulative, non-participating and non-convertible into common shares. Dividend will be equivalent to 10-year PDST-R2, to be repriced every 10 years. They will neither be listed on the Philippine Stock Exchange nor registered under the Securities Regulation Code.

The voting preferred shares will be issued at a par value of P0.10 per share, which will raise only about P60.28 million for the bank.

The issuance, however, will give the bank more flexibility to accept foreign investors.

In an interview, Security Bank president Alberto Villarosa said the bank had exhausted the foreign equity limit of 40 percent. He said this issuance was meant to deal with this ceiling than raise any fresh funding for Basel 3 capital adequacy ratio requirement.

Because the bank has real estate assets, foreigners are allowed to own only up to 40 percent of outstanding shares to comply with the ceiling for selected industries set by the Philippine Constitution.

“Timing (of the issuance) is most likely first quarter 2014 after securing shareholders’ in November and the go-ahead from the BSP (Bangko Sentral ng Pilipinas) and SEC (Securities and Exchange Commission),” Villarosa said.

The bank will convene a shareholders’ meeting in November to seek authority to issue as much as one billion of these voting.

The features of the preferred shares make them ineligible for Basel 3 compliance, Villarosa said. The proposed voting preferred shares are neither secured nor guaranteed and are subordinated to depositors, general creditors and subordinated debt.

In a research note dated Sept. 25, Deutsche Bank analyst Rafael Garchitorena said assuming that one voting preferred share (pref) would be offered for every one common share held, there would likely be an equal number of preferred and common shares. Because these will not be listed, the analyst said a majority of foreign common shareholders were not expected to subscribe.—Doris C. Dumlao