Backed by IFC, UnionBank to issue Philippines' second social bonds

MANILA, Philippines — Aboitiz-led Union Bank of the Philippines would sell “social” bonds to finance loans for small companies that were badly hit by the pandemic, with World Bank’s private sector arm investing in the planned issuance.

The International Finance Corporation (IFC), the investment arm of the Washington-based multilateral lender, would invest $150 million (P7.5 billion) in a seven-year social bond to be issued by UnionBank, according to a joint statement released Friday. It would be UnionBank’s longest-dated US dollar-denominated bonds to date.

The issuance would be the second of its kind in the Philippines, following Bank of the Philippine Islands’ sale of its own social bonds last year called COVID Action Response Bonds, or CARE Bonds.

Similar to BPI’s offer, proceeds from UnionBank’s sale of social bonds would be used to finance loans to pandemic-battered micro, small and medium-sized enterprises. Specifically, UnionBank plans to use the investment from IFC to fund over 2,000 loans to MSMEs.

For IFC, the transaction marks its first COVID-19 response social bond investment in Asia.

“It could not have come at a better time, as this market segment has been hit particularly hard by the current crisis.” Jose Emmanuel Hilado, UnionBank’s chief financial officer, said.

Before the pandemic hit home, MSMEs accounted for over 90% of businesses in the Philippines and over 60% of jobs, but MSME loans only cornered 6% of total bank loans in the country. That said, the economic fallout from the pandemic only increases the urgency for more financing to MSMEs to usher in a sustainable recovery.

The IFC has been investing in social bonds since 2017 but it doubled its investments in such securities last year after the coronavirus health crisis reached pandemic proportions. At the end of 2020, IFC had issued 53 social bonds in public and private markets in 11 different currencies.

“In the wake of the COVID-19 crisis, the use of social bonds to generate financing to meet the needs of vulnerable underserved people, including small businesses, will be critical to helping spur the recovery,” Alfonso Garcia Mora, IFC’s vice president for Asia and Pacific, said.

As of 11:55 a.m. Friday, shares in UnionBank were trading down 0.26% to P76.30 each.

$1 = P50.135