UBP raising up to P10B via retail notes offering

MANILA, Philippines–Aboitiz-led Union Bank of the Philippines has obtained the nod of the Bangko Sentral ng Pilipinas for its plan to raise as much as P10 billion from a retail offering of debt notes qualifying as tier 2 or supplementary capital under the Basel 3 framework.

BDO Capital and Investment Corp. was mandated as the issue manager and China Banking Corp., the underwriter, Union Bank disclosed to the Philippine Stock Exchange on Thursday.

The fixed-rate debt notes will mature in 10 years and three months from issue date.

Local credit watcher Philippine Rating Services Corp. has assigned a “PRS Aaa” rating on UnionBank as an issuer, the highest in its rating scale which suggested “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 credit worthiness of the issuer, evaluating its ability to meet all its financial obligations within one year.

The focus is on financial strength and stability under normal and stressed conditions to be able to meet existing and prospective financial obligations.

Proceeds from the tier 2 offering are seen boosting Union Bank’s Basel 3-compliant capital adequacy ratio (CAR) to 20 percent this year once all the P10 billion worth of notes are all issued.

The 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 stronger firewall to protect banks especially during periods of stress.

As Basel 3-Tier 2 instruments specify that losses are triggered only at the point of non-viability, risk on such securities is thus deemed to be broadly similar to that of senior debt. In the Philippines, the non-viability trigger in the Philippines is at the BSP’s discretion.

Union Bank earlier indicated interest to take over the assets and liabilities of the defunct Export and Industry Bank. It was also among the banks that had expressed interest to bid for a controlling stake in United Coconut Planters Bank.