Unionbank makes P6.8B from fresh debt note offer

Aboitiz-led Union Bank of the Philippines has raised P6.8 billion from its fresh issuance of debt notes qualifying as tier 2 capital, proceeds from which will be used to retire older tier 2 notes.

The tier 2 notes have a tenor of 10.25 years, but redeemable in 5.25 years. They will bear an interest rate of 5.25 percent a year.

The latest issuance was 36-percent higher than Unionbank’s target issue size of P5 billion, the bank told the Phi­lippine Stock Exchange on Wednesday.

The notes were listed on local fixed income platform Phi­lippine Dealing and Exchange Corp. on Feb. 24.

Standard Chartered Bank and The Hongkong and Shanghai Banking Corp. Ltd. are the joint lead arrangers, bookrunners and selling agents for the issuance. Unionbank is the limited selling agent while Asia United Bank Corp. serves as market maker for the tier 2 notes.

Unionbank obtained approval from the Bangko Sentral ng Pi­lipinas (BSP) last January to raise up to P20 billion from a new offering of debt notes qualifying as tier 2 or supplementary capital.

UnionBank intends to use the proceeds to redeem older tier 2 notes because the time value of the option declines as the expiration date gets closer as there’s less time for an investor to earn a profit from the option.

The bank exercised its option to redeem P7.2 billion worth of tier 2 subordinated notes carrying an interest rate of 5.375 percent per annum.

Almost all banks redeem tier 2 notes after five years or otherwise risk causing reputational issues, even if interest rates are in the favor of issuer-banks.

Tier 2 capital is the secondary layer of a bank’s capital held as required reserves. It is comprised of revaluation reserves, general provisions, subordinated term debt and hybrid capital instruments.

Unionbank ended 2019 with a record-high net profit of P14 billion as strong trading gains complemented a double-digit expansion in net interest earnings. The full-year net profit marked a 104-percent growth from the previous year’s net profit of P6.87 billion. This translated to an above-industry return on e­quity of 16.3 percent and return on assets of 2 percent.

Total assets of the bank grew by 15 percent to P770.9 billion last year.