Unionbank to issue P10B in tier 2 notes within 2014

Aboitiz-led Union Bank of the Philippines is preparing for future growth by raising as much as P10 billion from an offering of debt notes qualifying as tier 2 or supplementary capital under the Basel 3 framework in two tranches within this year.

Local creditwatcher Philippine Rating Services Corp. has assigned a “PRS Aaa” rating on Unionbank as an issuer, the highest in its rating scale and one that suggests “very strong capacity to meet its financial commitments relative to that of other Philippine [corporations].”

An issuer rating is an opinion on the general and overall creditworthiness of the issuer, evaluating its ability to meet all its financial obligations within a year. The focus is on financial strength and stability under normal and stressed conditions to be able to meet existing and prospective financial obligations.

Unionbank president Victor Valdepeñas said in an interview that the bank was planning to issue an initial P5 billion of tier 2 notes that would be compliant with the Basel 3 capital adequacy framework, subject to the approval of the Bangko Sentral ng Pilipinas.

“We intend to float P10 billion within the year, if possible,” Valdepeñas said, adding that regulatory clearance for these instruments was usually in tranches of P5 billion. If Unionbank could issue the first P5 billion tranche this September, another will be issued before the year ends.

Proceeds from the tier 2 offering is seen boosting Union Bank’s Basel 3-compliant capital adequacy ratio (CAR) to at least 18 percent of risk assets and further to 20 percent this year once all the P10 billion notes have been all issued.

Basel 3 framework requires a complex package of reforms designed to improve the ability of banks to absorb losses. It also extends the coverage of financial risks and requires a stronger firewall to protect banks especially during periods of stress.

It was reported that Unionbank had indicated interest to take over the assets and liabilities of the defunct Export and Industry Bank as an alternative to its liquidation. It was also among the banks that had expressed interest to bid for a controlling stake in United Coconut Planters Bank.