RCBC to offer $130-M hybrid notes compliant with Basel 3 framework

MANILA, Philippines—The Yuchengco-led Rizal Commercial Banking Corp. has obtained mandate from its board to offer as much as $130 million worth of hybrid notes eligible as core or tier 1 capital under the Basel 3 capital adequacy ratio (CAR) framework.

In a disclosure to the Philippine Stock Exchange on Monday, RCBC said this was part of the bank’s regulatory compliance to the Basel 3 capital guidelines of the Bangko Sentral ng Pilipinas.

The board also issued authority to tap financial and other institutions to offer, issue, service and redeem these hybrid notes, including Morgan Stanley & Co. International plc as dealer manager.  The Bank of New York was named as trustee and agent bank.

The issuance would still be subject to approval from the BSP, the disclosure said.

Asked about the timing of this fund-raising, RCBC head of strategic initiatives John Deveras said the proposed issuance of the Basel 3-compliant capital notes would be launched “depending on market conditions.”

This issuance is part of RCBC’s $430-million capital-raising program to prepare for stringent capital adequacy requirements under Basel 3 framework, which introduces a complex package of reforms designed to improve the ability of banks to absorb losses, extend the coverage of financial risks and have stronger firewalls against periods of stress.

Of the projected capital-raising requirement, $200 million has so far been raised by RCBC.  It earlier sold $100 million in additional equity to the International Finance Corp. and then raised another $100 million from the stock market through an overnight equity placement at P64 per share.

The $130-million proposed hybrid capital notes can qualify as tier 1 capital because of certain features like loss absorption through principal write-down should BSP determine that the bank has reached the point of non-viability, Deveras said.

The hybrid notes would have optional redemption after five years and then after 10 years, he added.

RCBC’s capital funds ended in 2012 at P42.21 billion while capital adequacy ratio based on Basel 2 framework was at 17.61 percent of risk assets versus the minimum regulatory requirement of 10 percent.  Core or tier 1 ratio of 13.19 percent also exceeded the 6 percent requirement.

The bank grew its net profit last year by 24 percent to P6.21 billion on higher interest and fee-based income alongside hefty treasury gains. This translated to a return on equity of 15.52 percent while return on assets stood at 1.77 percent.