Security Bank sees P15B from sale of long-term deposit instruments

Security Bank plans to raise as much as P15 billion from the sale of high-yielding deposit products, providing an alternative for investors seeking long-term instruments.

In a disclosure to the Philippine Stock Exchange on Tuesday, Security Bank said its board had approved an offering of long-term negotiable certificates of deposits (LTNCDs), now a popular instrument among local banks seeking to take advantage of the enormous liquidity in the financial system.

Security Bank president Alberto Villarosa said the LTNCDs would be offered in tranches of P5 billion each, complying with the limits set by the Bangko Sentral ng Pilipinas.

LTNCDs are time deposits, but have longer maturity and carry higher yields. LTNCDs are tax-free because of the long tenor. This enables banks to offer clients better yields.

A bank typically offers LTNCDs to attain a better liability structure, as it matches assets and liabilities.

Also, Security Bank on Tuesday obtained the approval of its shareholders to create one billion in new voting preferred shares. This will allow the bank to deal with foreign equity limits.

The bank plans to issue 602.83 million preferred shares to holders of common stock through a one-for-one rights offering after the distribution of the 20-percent common stock dividend. Villarosa said this would likely happen in the first quarter of 2014, when clearances from the Bangko Sentral ng Pilipinas and Securities and Exchange Commission would have been obtained.

The preferred shares will have a par value of P0.10. The creation of these preferred shares will require an increase in authorized capital from P10 billion to P10.1 billion to accommodate P100 million worth of preferred shares, the bank said in a statement.

The voting preferred shares will be noncumulative, nonparticipating and nonconvertible into common shares. Dividend will be equivalent to 10-year PDST-R2 and repriced every 10 years.

They will neither be listed on the Philippine Stock Exchange nor registered under the Securities Regulation Code.

While only a small amount of fresh capital may be expected from the issuance—amounting to P60 million for the first tranche of 602.83 million preferred shares to be issued at par value—it will enable the bank to accept more foreign investors.

Security Bank reportedly is about to breach the foreign equity limit of 40 percent. Since   the bank has real estate assets, foreigners are allowed to own up to only 40 percent of outstanding shares to comply with the ceiling for selected industries as prescribed in the Philippine Constitution.

The preferred shares are not eligible for Basel 3 compliance. They are neither secured nor guaranteed and are subordinated to depositors, general creditors and subordinated debt. Doris C. Dumlao