Metrobank leads bond charge
Bonds Philippine banks to test appetite for bonds after rule changeBY KRISHNA MERCHANTMajor Philippine banks are
preparing to issue bonds and
commercial paper for the first
time since the central bank
dropped a rule requiring prior
approval for debt sales.
In a circular published on
August 9, Bangko Sentral ng
Pilipinas said it would allow
banks to raise bonds without
prior authorisation, subject to
certain requirements regarding
corporate governance,
risk management, capital
adequacy and other similar
issues. Although banks were
not formally prevented
from issuing bonds before,
permission was difficult
to obtain and most banks
preferred issuing long-term
negotiable certificate of deposit
(LTNCDs) to their depositors –
an easier option as this type of
paper is in high demand and
enjoys tax exemptions.As a result, major banks
like CHINA BANKING CORPORATION
(China Bank) or BANK OF THE
PHILIPPINE ISLANDS never issued
domestic bonds before, funding
themselves instead through
deposits, LTNCDs, rights issues
or offshore bonds.
Following the circular,
domestic banks have begun
planning maiden bond issues.
The METROPOLITAN BANK TRUST
COMPANY (Metrobank) could
be the first to market. It is
planning to raise at least Ps2bn
(US$37m), with an option to
upsize, from peso bonds within
the next three weeks, according
to a source close to the plans.
“It will raise a small amount
at the shorter end of the yield
curve to test the market,” said
the source.
The bank has mandated
Standard Chartered Bank as sole
arranger to offer two to five-
year domestic bonds, according
to a recent filing on thePhilippine Stock Exchange.
In the past two months, five
domestic banks – BPI, UNION BANK
OF THE PHILIPPINES, BDO UNIBANK,
PHILIPPINE NATIONAL BANK and
Metrobank – received board
approvals to raise a combined
total of up to Ps270bn from
bonds or CPs. China Bank
earlier announced a Ps50bn
programme to issue LTNCDs
and bonds.
“Fundraising through
bonds is a cheaper option for
banks compared to traditional
instruments such as long-
term negotiable certificates of
deposits,” said Franz Bonoan,
managing director at BPI
Capital.
In addition, the reserve
requirement rate for bonds
is 6%, compared with 7% for
LTNCDs, which are a form of
time deposit.
“The recent initiatives to
further streamline and simplify
the bond issuance process,as well as the lower reserve
requirements for bond issuance
compared to LTNCDs, will
encourage the banks to seek
out opportunities through this
channel,” said Simon Chen, vice
president and senior analyst in
Moody’s financial institutions
group.
LTNCDs have been popular
because domestic investors who
hold such instruments for more
than five years are exempted
from 20% withholding tax.
“We believe in the future there
will be a tax rule change; the
withholding tax exemption for
LTNCDs will be scrapped,” said
BPI Capital’s Bonoan.
Banks now have the
flexibility to issue bonds
across the yield curve and
even CPs of less than one year,
DCM bankers note. That will
add welcome depth to the
Philippine capital market,
where corporate bond issues
are rare and tend to be sold
through private placements.
“New bank bonds will give
institutional and retail investors
a chance to diversify from the
usual blue-chip companies whoLocals buy into Thailand Future
Equities Foreign investors stay away on rate increase concernsBY S ANURADHAState-owned infrastructure trust
THAILAND FUTURE FUND completed
the kingdom’s largest IPO in
three years thanks to support
from local institutions even as
foreign investors stayed away.
TFF last week raised Bt45bn
(US$1.4bn) through its IPO,
having priced it at the bottom
of a 4.75%–5.30% range. The
float is the biggest in Thailand
since Jasmine Broadband’s
Bt37bn infrastructure fund
listing in 2015.
Local investors made up most
of the 50 accounts joining the
institutional tranche while
participation from foreign
investors was very limited,
according to a person close to
the deal. The 15 cornerstone
investors in the IPO were alsolocal institutions.
The trust owns toll roads
including Bangkok’s Chalong
Rat Expressway and the elevated
Burapha Withi (Bang Na)Expressway linking the capital to
the eastern economic corridor.
TFF has to be majority
owned by local investors
under Thai government rules.
Foreign investors, who were
also given a chance to join the
transaction, decided to pass.
Eventually, shares in the
institutional tranche wereentirely allocated to local
investors.
The lack of interest of foreign
investors did not come as a
surprise as concern over risinginterest rates in the US has
made them averse to yield-
based instruments in emerging
markets. “Infrastructure, yield
instruments are low on their
shopping list,” an ECM banker
away from the deal said.
This was in contrast to the
Bt15bn IPO of energy drinks
maker Osotspa earlier thismonth, where foreign investors
were the main buyers in the
institutional tranche. “The
consumer sector continues to
grow in Thailand but the same
can’t be said of infrastructure
which has seen many delays in
recent years,” the banker noted.
However, Osotspa’s weak
listing may have put off foreign
investors. The shares traded at
Bt24.20 last Friday against the
IPO price of Bt25, having lost
most of the gains made shortly
after listing on October 17.
The fact that foreign
investors, who have been net
sellers of Thai stocks so far this
year, have reduced the pace of
their selling did not help the
TFF deal.
“Although the intensity of
the sales has declined, the TFF
IPO didn’t have much to offerNews
“Thailand is now being considered a safe haven of
sorts in Asia. It’s one of the few Asian economies
with a current account surplus and while elections
are due early next year, we have been witnessing a
decent phase of political stability.”