China Bank raises P10.25 billion from LTNCD offer

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By Karl Angelo N. Vidal, Reporter

CHINA BANKING Corp. (China Bank) raised P10.25 billion from its long-term negotiable certificates of deposit (LTNCD), which it wants to use to stabilize its cost of funding and expand its business.

At the ceremonial listing of the investment instruments on Thursday at the Philippine Dealing System (PDS) in Makati City, the Sy-led lender said it raised P10.25 billion from the peso-denominated issue.

The notes will mature in 5.5 years and carry an interest rate of 4.55% to be paid quarterly until Jan. 12, 2024.

The LTNCD issuance, the largest in the banking industry in 2018, was twice oversubscribed, prompting China Bank to upsize the offer to P10.25 billion from its initial offer of P5 billion.

The issuance is the first tranche of China Bank’s P20-billion LTNCD program approved by the central bank.

Like regular time deposits offered by banks, LTNCDs offer higher interest rates. However, LTNCDs cannot be pre-terminated but can be sold on the secondary market, making them “negotiable.”

In his speech, China Bank Chief Operating Officer Romeo D. Uyan, Jr. said the “strategic and well-timed” LTNCD offering will enable the lender “to support its business expansion plans as well as to improve the bank’s deposit maturity profile.”

“What is more remarkable is that we are able to achieve this in an environment on both domestic [foreign exchange] and interest rates have been very volatile brought about by overseas events,” Mr. Uyan added.

Benedict L. Chan, China Bank treasurer, said the P10.25 billion raised through LTNCDs will stabilize the lender’s long-term interest rate costs.

“With the current environment where the rates are still continuing to go up, we expect these funds to be able to tidy us for one to two months at most,” Mr. Chan told reporters on Thursday.

The Hongkong and Shanghai Banking Corp. Ltd. was the sole arranger and bookrunner of the offer. It also served as a selling agent together with China Bank and China Bank Capital Corp.

Mr. Chan said the bank might offer the next tranche of its note program “in December if we need to. If not, in 2019,” adding the next offer will be subject to market conditions and the risk appetite of the investors.

The P20-billion LTNCD program is part of China Bank’s funding initiative amounting to P50 billion. The other P30 billion will be raised through commercial papers and corporate bonds.

“We expect to raise more funds in order for us to be able to continue the asset buildup that China Bank has done,” Mr. Chan added.

China Bank’s listing brings the total volume of outstanding listed securities to P891.2283 billion, floated by 47 companies.

In June 2017, China Bank listed P6.34 billion in LTNCDs due 2022. Prior to this, the lender also raised P9.59 billion in the first tranche in November 2016.

Apart from China Bank, UnionBank of the Philippines, Inc., BDO Unibank, Inc., Security Bank Corp. and East West Banking Corp. have also completed LTNCD offerings this year, raising P3 billion, P8.2 billion, P5.78 billion and P2.45 billion, respectively.

Meanwhile, China Bank expects its loan book to grow by 15-18% this year, Mr. Chan said.

“So far, the take up in the first half is small given the fact that we are in a rising interest rate environment,” he said, adding it may start to pick starting in the second half of the year.

“Corporates are now in the position that they know that the interest rates are going up and they need to do something in order to lock up the long term rates as well.”

China Bank’s portfolio consists of 85% in loans and 15% in securities. Broken down, its loan book is “60-70% corporate and 30-40% retail.”

The bank booked a net income of P1.5 billion in the first quarter of the year, 2% higher than the same period last year amid growth in its loan business.

China Bank shares went up 10 centavos or 0.30% to close at P33.20 apiece on Thursday.