RCBC to issue P3.6-B bonds

Rizal Commercial Banking Corp. (RCBC) is pushing through with its P3.6-billion bond issue as the Bangko Sentral ng Pilipinas (BSP) eased its rules on the registration and sale of unsecured subordinated debt (USD), clearing the path for the bank’s tier 2 offer.

A well-placed BSP official revealed yesterday that the Monetary Board has cleared up "some obstacles" and clarified provisions related to the issuance of USD instruments by banks.

The clarification, according to the official, was prompted by an RCBC inquiry related to its planned tier 2 offer, on whether banks that were appointed as registry banks could also be appointed as a selling bank for USDs.

According to the official, the MB decided that registry banks could be allowed to act as both selling agent and registry bank since there is no conflict of interest between the two functions.

The official explained that a bank, acting as selling agent for the debt instrument, performs its functions on the opening and closing of the offer while the registry bank assumes its functions only after the offer has been concluded.

Under BSP rules, registry banks are not allowed to be underwriters or market makers or selling agent. The officials said the MB decided to relax this rule and allow registry banks to also function as selling agent as long as they are not also underwriters or market-makers.

According to the official, the MB also allowed RCBC’s trust account department to buy the bank’s USDs for its common trust fund provided it is fully disclosed to the investors of the trust fund.

"As long as investors know that their fund is also being invested on the bank’s USD, we will allow it," the official said.

RCBC’s original plan was to issue P3.6 billion worth of 10-year notes in denominations of either P500,000 or $10,000, that would be due and demandable in five-and-a-half years.

The official said RCBC has so far not amended its planned tier 2 offer but he said the MB approval applies only to the peso-denominated USDs and not on RCBC’s plan to issue $30-million dollar-denominated bonds.

RCBC wants to issue the bonds to raise at least P2 billion in so-called Tier 2 capital to beef up its capital now estimated at P13.5 billion.

Tier 2 capital is essentially a subordinated debt, representing an investment that has the aspects of a deposit since it earns a pre-determined rate. Tier 2 capital is unlike shares of stocks which gain or lose value according to the issuer’s financial performance.

RCBC’s plan is to have the option to call the bonds at par value on the fifth year, effectively allowing it to refinance without paying the higher cost and going through the regulatory capital amortization of 20 percent a year on the final five years before maturity. – Des Ferriols