In mid October, Banco de Oro (BDO) launched its maiden international bond issue via UBS. The Sy family-owned bank represents one of the fast growing banks in the Philippines and was rewarded with a large order book for its $150 million deal.
Much of the Ba2 rated deal's appeal was attributed to the Sy family brand name and BDO's ability to maintain financial discipline as it leapfrogs into the premier tier. Out of 41 banks in the Philippines, for example, it is one of only two with an NPL ratio below 10%.
The transaction has a five-year maturity and a three-year put option, with pricing at 99.331% on a coupon of 6.5% to yield 6.75%. This equated to a launch spread of 449bp over Treasuries, a 151bp pick-up to the sovereign.
Here President Nestor Tan, discusses the bank's rationale for the issue.
Why did you decide it was time to make your international debut?
Tan: There were two main reasons. Firstly we regarded the bond deal as a balance sheet exercise that would enable to get a good mix of short, medium and long-term funding. We want to have a balanced risk profile. Secondly, as a growing bank we want to maintain some visibility in the international capital markets and be part of investors' consciousness. We felt it would be a good time to issue.
You did an investor roadshow. What sort of feedback did you get?
Yes, we had a domestic roadshow in Manila, then presentations in Hong Kong and Singapore. We cancelled the European roadshow though because demand was so strong by that point. The main thing that came across was investors' desire to see a sound, sustainable business strategy and be convinced of management's ability to implement that strategy. It's not so much a matter of where the bank is going, but whether management are aware of potential risks and what steps would be taken to mitigate them.
How would you describe your strategy?
It's basically a niche strategy. We look at specific markets, products or geographies where we can excel and focus on those. For example in explaining the rationale for our acquisition of the 57 First E-Corp branches from Metro Pacific in 2002, we showed how we thought we could bring the productivity of those branches up to the BDO level. We also highlighted the potential synergies with the SM group from moving into credit cards and mortgages.
Were you happy with the bond issue?
Yes, the underwriters did a very good job and we were able to raise the issue size from $100 million to $150 million. I believe the total order book was $760 million. It was an extremely good experience for us.
Yes I remember thinking how big the order book was for such a small deal. Also you appeared to have got your timing spot on. Recent deals from the Philippines seem to have struggled because of deteriorating political sentiment.
When we thought about when to launch we wanted to make sure we didn't get in the way of any deals by the sovereign. I think the government's recent deal has taken a lot of liquidity from the market.
Are you happy with your credit rating? You are rated one notch lower than the sovereign.
I don't think any bank officer will ever tell you they're happy with their rating. One of the issues Moody's raised with us was the fact that we're a young organization and relatively small. I think systemic issues and lack of sovereign support also stood against us.
But I'm very happy to have got the pricing and subscription levels we did. I think investors took the credit rating into consideration, but it was not the sole input for their final decision.
Did you learn a lot from the credit rating process?
Yes. What was most helpful was the interview with the credit analysts. They really knew their stuff and what to look for. It was interesting for us to get an idea of the way investors would think. And it made us a lot more confident about our strategy and what we're doing.
How often do you anticipate coming to the international bond markets?
We intend to come on a regular basis, probably once every two years or so. But it depends on our needs. We think there will be some expansion in term loans over the next few years as a result of the privatization of the power sector and various infrastructure projects.
There's been a recent flurry of issuance from the sub debt sector. Is this something you would consider?
No, not at the moment, there's no need. Our tier 1 capital stands at 18% to 20% and our tier 2 was provided by the IFC.
And what did you do with the proceeds? Were they swapped?
No, we put the bond on our dollar balance sheet. We have a number of medium term loans that we matched it against.
