Big banks raising funds from local debt market

MANILA, Philippines — BDO Unibank Inc. and Security Bank Corp. returned to the onshore debt market to raise around P12.5 billion via the issuance of long term negotiable certificates of deposits (LTNCDs) to support their expansion initiatives.

BDO, the country’s largest lender in terms of assets and capital, raised P6.5 billion or P1.5 billion higher than the original offer of P5 billion following solid demand from mostly retail investors.

The latest tranche of LTNCDs issued by the bank owned by the family of the late retail and banking magnate Henry Sy has a term of five and a half years with a final interest rate of four percent per annum.

Proceeds of the fund raising activity would help diversify the maturity of the BDO’s funding sources and support business expansion plans.

BDO raised P7.32 billion via the issuance of LTNCDs last April. It also issued P8.2 billion worth of LTNCDs in May last year.

Last February, it also raised P35 billion as investors gobbled up its bond offering aimed at supporting the bank’s expansion and at the same time diversifying its funding sources.

The amount accounted for more than a third of its P100-billion bond program launched last August. The transaction represents the largest ever single peso bond issuance by a Philippine bank, following the bank’s $150 million Green Bond in 2018.

In 2017, the bank also raised P60 billion via stock rights offering and $700 million via the issuance of senior notes in the offshore debt market.

On the other hand, Security Bank successfully raised P6.06 billion as it returned to the domestic debt market for the second time this year via the issuance of LTNCDs.

Raul Pedro, executive vice president and treasurer at Security Bank, said the issuance was driven by solid demand from both retail and institutional investors helping exceed the original size of P5 billion.

“This issuance has firmly placed our credit amongst retail investors – the LTNCD gives the investing public the chance to further express their confidence in Security Bank’s stability and ability to grow,” Pedro added.

The oversubscription allowed the bank to successfully price the LTNCDs at four percent despite the rising interest rates and broader market volatility.

The Bangko Sentral ng Pilipinas (BSP) has given Security Bank the green light to issue P20 billion worth of LTNCDs last June. In October 2017, the bank also received an approval from the BSP to raise up to P20 billion through LTNCDs of which it issued P8.6 billion in November 2017 followed by another P5.78 billion in May 2018.

Last June, the bank raised P18 billion through its maiden fixed rate corporate bond issuance as part of its P50 billion funding program announced last December to support growing lending activities and to diversify fund sources.

Aside from the onshore debt market, Security Bank also tapped the offshore debt market in September last year and raised $300 million through the issuance of five-year senior unsecured fixed rate notes under a $1 billion medium term note program to extend its term liabilities and diversify its investor and funding base.

LTNCDs are negotiable certificates of deposit with a designated maturity and represent a bank’s obligation to pay the face value upon maturity, with periodic coupon or interest payments during the life of the deposit.

LTNCDs are an attractive investment especially for individuals, as interest income is exempt from withholding taxes if the LTNCDs are held for at least five years.