Banco de Oro inks $20-M convertible loan from IFC

Banco de Oro Universal Bank (BDO) signed last Tuesday a non-binding letter of intent with the International Finance Corp. (IFC) for a $20-million convertible loan. The IFC is the investment arm of the World Bank.

BDO is issuing a total of 89 million shares composed of 32 million primary and 56 million secondary shares priced at P20.80 per share. The public listing will be held on May 21 this year.

According to bank officials, the IFC has an option to convert the loan into common shares starting in the third year of the loan. "The deal is subject to final documentation and receipt of all necessary corporate and regulatory approvals," they said.

The convertible loan will qualify as Tier 2 capital under the regulations of the Bangko Sentral ng Pilipinas (BSP) which allows banks to expand their operations through new capital infusion from sources like the World Bank affiliate.

"This will be one of the first instances of a Tier 2 instrument in the Philippines, allowing the IFC to deploy a fairly new capital instrument in the local market," the BDO said.

After three years, the Henry Sy-led expanded commercial bank is finally going public, of the first financial institution to do so this year after the economy showed signs of recovery. It will also mean that the bank can undertake an aggressive expansion program which new capital from its strategic partners and new borrowings aside from earnings in the initial public offering (IPO).

Officials said majority of the proceeds of the listing is for bank expansion including trading accounts in securities and to support lending and other expansion activities. "The one-time gain from the sale of secondary shares will also enable the bank to strengthen the balance sheets," officials said during the formal announcement of the bank’s planned listing.

Bank president Leonardo Tan said they will be expanding their consumer banking business specifically in the credit card and property management estate business. "We will be putting up BDO Card Co. and a property management group that will manage its real and other properties owned and acquired (ROPOA) worth P4.5 billion," Tan added.

In the first quarter of the year, BDO registered a net income of P130 million. Its full-year income target is P979 million. It will be incurring a non-recurring gain of P383 million from the IPO but a one-time expense of P600 million for loan provisioning.

"The net income target is sustainable under normal conditions. The one-time gain will be offset by the increase in our provisioning for bad loans," Tan added.