Moody’s: RCBC did credit positive move selling property investments

The liquidation of property investments by Rizal Commercial Banking Corp. reflects a credit positive move as frees up capital grow business and prepare for the Basel III regulations next year, Moody’s Investors Service said Thursday.

The fifth largest bank in the Philippines in terms of assets announced late last week it concluded share purchase agreements to sell its 25-percent equity stake in RCBC Realty Corp. and its 49- percent equity stake in RCBC Land Inc. for P4.55 billion.

“These proactive non- core asset sales are credit positive for RCBC because they free up capital for business growth and higher capital requirements under the new Basel III regime,” according to Moody's.

“Based on RCBC’s June 2013 financials, we expect its consolidated Tier 1 capital ratio to increase to 16.8 percent pro forma for the share sale, from 16.2 percent, well above the average 15 percent ratio among our rated Philippine banks at the end of June,” the debt- watcher noted.

Although the increase in capitalization was not material, it made quite remote the possibility that the bank’s Tier 1 capital may decline because of the deduction that banks must apply to their Tier 1 capital for their equity investments in non- financial entities beginning Jan. 1, 2014.

“If the bank does not dispose of its stakes in RRC and RLI by Jan. 1, 2014, its Tier 1 capital ratio will decline to 15.2 percent under the new capital regime, based on June 2013 financials, as shown in the

exhibit,” Moody’s said.

The deal calls for Pan Malayan Management and Investment Corp. to buy 7.66 percent stake in RCBC Realty and the entire 49 percent stake in RCBC Land. House of Investments Inc. will buy a 10 percent stake in RCBC Realty, and RCBC Land will buy the remaining 7.34 percent stake in RCBC Realty.

The forward-moving divestments pushes the strategy of monetizing non- core assets and deploy capital to fund core lending business, Moody’s said.

In February, the bank sold P4.8 billion of nonperforming assets to Philippine Asset Growth One Inc., a specialpurpose company. Between March and April, the bank raised $200 million from share placements, which increased its capital buffer.

“The disposal of stakes in its associates mirrors recent transactions by Metropolitan Bank & Trust Co. Ahead of the imminent implementation of Basel III requirements on 1 January 2014, we expect other Philippine banks, particularly those that belong to local conglomerates and those with minority stakes in various entities, to be more active in divesting and monetizing value from their non- core assets,” the debtwatcher noted. ( Wires)