PNB to buyback P3.5-B tier 2 debt notes

Tycoon Lucio Tan-led Philippine National Bank (PNB) is set to retire P3.5 billion in debt notes that were issued five years ago to form part of its tier 2 or supplementary capital.

PNB has obtained approval from the Bangko Sentral ng Pilipinas (BSP) to exercise its call option on the P3.5 billion lower tier 2 unsecured subordinated debt issued on May 9, 2012, the bank disclosed to the Philippine Stock Exchange on Friday.

The notes carry a coupon rate of 5.875 percent per annum.

PNB will redeem the notes on May 10 at an amount equal to the total issue price of the notes plus accrued and unpaid interest thereon up to the call option date.

The call option will be paid to all noteholders on record as of April 25, 2017.

One year after these tier 2 notes were issued, the BSP issued the Basel 3 implementing guidelines on minimum capital requirements. This contained the risk-based capital adequacy framework, particularly on the minimum capital and disclosure requirements for universal banks and commercial banks, as well as their subsidiary banks and quasi-banks. The circular took effect on Jan. 1, 2014.

The BSP circular prescribed a minimum common equity tier 1 (CET1) ratio of 6 percent and tier 1 capital ratio of 7.5 percent. It also introduced a capital conservation buffer of 2.5 percent comprised of CET1 capital. The BSP’s existing requirement for total capital adequacy ratio remained unchanged at 10 percent.
Further, existing capital instruments as of Dec. 31, 2010 which did not meet the eligibility criteria for capital instruments under the revised capital framework were no longer recognized as capital under Basel 3.

Capital instruments issued under the BSP circular that defined qualifying capital particularly on hybrid tier 1 and lower tier 2 capital starting Jan. 1, 2011 and before the effectivity of the new Basel 3-based circular were recognized as qualifying capital until Dec. 31, 2015. —DORIS DUMLAO-ABADILLA