By Raymund Luther B. Aquino, Reporter

RCBC picks Taiwan financial giant for stake sale

Posted on October 01, 2014

RIZAL Commercial Banking Corp. (RCBC) is taking in a unit of Taiwan’s largest listed financial holding company as an investor, in a transaction that would give the Yuchengco-led lender about P8 billion in fresh capital and open for the bank new doors to Asia.

Rizal Commercial Banking Corporation (RCBC) President Lorenzo V. Tan gestures during an interview in this photo taken on May 21, 2013. -- BW FILE PHOTO
In a disclosure to the Philippine Stock Exchange (PSE) on Tuesday, RCBC said its bank board has designated Taiwan’s Cathay Life Insurance Co. Ltd. “as the preferred bidder for the proposed acquisition of a 20% share block in RCBC.”

Cathay Life is a wholly owned subsidiary of Cathay Financial Holding Co., Ltd., (Cathay Financial), which is the largest publicly-listed financial holding company in Taiwan with assets of $215 billion and a market capitalization of $21 billion.

The transaction involves Cathay Life’s subscription to 124,340,272 primary common shares of RCBC at P64 per share -- a significant premium over RCBC shares’ closing price of P53.60 on the PSE Monday night.

RCBC shares rose as much as 6.3% to P57 each in morning trade following the announcement, outperforming the broader market’s 0.24% climb, before ending Tuesday’s session at P54.15 apiece.

Cathay Life’s purchase of newly-issued RCBC shares would give the bank P7.957 billion in new core equity Tier 1 (CET1) capital, or high-quality and loss-absorbent capital, RCBC said. The capital infusion “would, if consummated, boost RCBC’s CET1 ratio from 10.9% to 13.5% as of June 30, 2014 on a pro-forma basis,” well above the 6% CET1 minimum ratio set by the central bank.

Three other transactions under the proposed deal would bring Cathay Life’s stake in the bank to the 20% level.

Cathay Life would acquire 118,935,590 secondary shares held by Hexagon Investments B.V., an entity controlled by funds advised by CVC Asia Pacific Limited (CVC).

In addition, Cathay Life would take control of the International Finance Corp.’s 36,724,138 secondary shares. Both transactions were priced also at P64 per share.

Cathay Life will also enter into a shareholders agreement with the Pan Malayan Management and Investment Corp. and RCBC, the bank said.

The prospective transactions require an outlay from Cathay Life of at least P17.919 billion (about $400 million) for the 20% stake.

RCBC said it decided to defer a P4.5-billion ($100.38 million) stock rights offering because of a potential private placement by Cathay Financial.

“RCBC is in the process of negotiating the transaction documents with Cathay Financial for the proposed transaction,” the lender said in a disclosure, adding that both sides agreed to negotiate until Dec. 31.

The 1-to-11 stock rights offering, approved by RCBC’s board of directors in July to beef up its capital, will push through in January if Cathay Financial’s buy-in is not finalized by the year-end, the local bank said. 

RCBC said that it seeks “to derive significant value-add from the Cathay Financial relationship” in the following areas: capital; consumer banking; wealth management; digital banking; corporate relationships across Cathay Financial’s network across Taiwan, Greater China, and the Association of Southeast Asian Nations (ASEAN); and, cross-selling.

On the sidelines of the Philippine Midyear Economic Briefing yesterday, RCBC President and CEO Lorenzo V. Tan told reporters that “there were several interested [parties], but we chose them because they can add value to our business.”

Mr. Tan pointed to the significant size of Cathay Financial, noting its chosen partner is a Fortune 500 company.

With the nearly P8-billion capital infusion, Mr. Tan said RCBC “will have enough capital to last us until 2018, given our [annual] growth rate of 15-20% in terms of loans.”

But more opportunities are in the pipeline for RCBC with this prospective partnership, Mr. Tan said citing the company’s pan-Asian presence.

“They’re in Vietnam, Cambodia, they have a representative office in Myanmar. They operate in countries that we’re not familiar with,” Mr. Tan noted.

“I also like their strength in asset management. We’ve been looking for a strategic partner in asset management,” Mr. Tan added, noting that the largest financial institution in the world today is not a bank, but investment management company BlackRock.

“There’s a need to develop our asset management business, because years from now, that industry will overtake the commercial banking industry.”

ND Fernandez, analyst at Philequity Management, Inc., said it is notable that the new investor is willing to pay a premium for its RCBC stake.

“We’re seeing a company that wants to buy an RCBC stake at that price, and thinks that the share price will still grow after that. That’s bullish for RCBC,” Mr. Fernandez said.

He noted, however, that the transaction still needs to be finalized and consummated. RCBC said in its disclosure that the Cathay deal is still subject to regulatory approval.

Once RCBC “firms up the transaction,” however, the bank may capitalize on the partnership by taking it as a “step towards establishing a regional presence,” or conversely, Cathay may seek “to expand its foothold in the Philippines later on through RCBC.”

“If this deal is consummated, then this is definitely a good signal for the domestic banking industry,” Mr. Fernandez said. “The industry will be seeing the entry of more foreign investors.”

The RCBC-Cathay alliance would be one of the first of an expected string of deals after Manila relaxed rules for investment in the banking sector.

Philippine banks are attracting overseas investment after Congress passed a law allowing foreign groups to take full control of local banks.

At the same time, Taiwan’s financial regulators are encouraging banks to expand in Asia as the home market is over-crowded. -- with Reuters