LOCAL banking giant Metropolitan Bank and Trust Co. is all set to redeem by February next year $125 million worth of hybrid notes which no longer qualify as tier 1 or core capital under the more stringent Basel 3 capital adequacy framework.
In a recent disclosure to the Philippine Stock Exchange, Metrobank said it had sent notice that it would exercise the optional redemption of these perpetual capital securities.
The notice had been sent to the trustee, principal paying agent and registrar of the hybrid tier 1 capital securities.
The hybrid notes, being perpetual in nature, have no maturity but the bank was given an option to redeem them at a certain date or otherwise pay a “step-up” or higher interest rate.
The perpetual bonds were issued by Metrobank in 2006 pursuant to a trust deed with The Bank of New York (Trustee) and listed with the Singapore Exchange Securities Trading Ltd. They bear a coupon rate of 9 percent per annum payable semi-annually through Feb. 15, 2016.
If not redeemed, the rates will be reset at 6.1 percent per annum above the prevailing London Interbank Offered Rate (Libor) for three-month US dollar deposits.
With the implementation of Basel 3 capital adequacy framework, banking authorities no longer recognizes instruments such as Metrobank’s hybrid securities as eligible tier 1 capital.
Basel 3 introduced a complex package of reforms designed to improve the ability of banks to absorb losses. It also extended the coverage of financial risks and required stronger firewall against periods of stress.
Ahead of this redemption, Metrobank, beefed up its tier 1 capital by raising P32 billion from the sale of new shares to existing investors.