BDO Unibank PHP43.51 billion (US$1.04 billion) rights offering
Bookrunners: Citi, Deutsche Bank, J.P. Morgan
One accusation of the Philippines equity market has been its relative lack of depth. This is not entirely surprising; the country does not boast one of the biggest economies in Asia, and as a result it has less listed companies of note.
But BDO Unibank’s rights offering on July 2, 2012 went some way to adding more liquidity. The bank, which is the Philippines’ largest by assets, opted to raise over US$1 billion through a rights offering that was the largest single equity issuance in the country’s history. It issued 896 million common shares at a 24% discount to its outstanding share price, a hefty discount but a necessary one given that it was effectively increasing its capital base by 25%.
The deal itself went smoothly, with a good take-up by existing shareholders. And while BDO Unibank’s share price initially dipped on the news of the rights offering and its impact on the bank’s return on equity, investors quickly got around the fact that the funds were being raised for positive reasons.
These included the fact that the new equity strengthened BDO Unibank’s tier one capital ratio to 15.2%, a useful increased given of the country’s planned early implementation of Basel III capital requirements in 2014. The extra capital was also useful given the anticipation of a rise in infrastructure-related funding demand as a result of the government’s raft of public-private partnerships.
“A lot of people were surprised by the size of the offering but BDO’s management really thinks for the long term,” says a head of research at an international bank in Manila. “Raising these funds helped increased its tier one ratio to around 15% from 10% beforehand, a higher rate than its rivals, while giving it a higher capital base to allow for bigger lending going forward. To me it was a great deal.”
The confidence of shareholders that the bank was ultimately doing the right thing for its security and future were revealed in its share price performance after the rights issue; BDO Unibank’s shares rose from PHP62.5 on the day the rights offering occurred to PHP72.8 at the end of 2012.
Other notable transactions from the Philippines included the sovereign’s PHP30.8 billion 3.9% issue of 10-year bonds, which marked its latest successful ability to conduct a global peso bond issue, while San Miguel conducted a PHP80.025 billion hybrid deal too, which lured retail investors in with the fact that the preferred shares offered returns about 50% higher than comparable government debt.
But for demonstrating the resilience of the Philippines equity market and raising funds for prudent and far-sighted reasons, BDO Unibank most impressed us in 2012.