RCBC to borrow $200M; senior notes get BB- rating

The board of Rizal Commercial Banking Corp. (RCBC) has approved a plan to borrow $200 million via senior notes, which it will use for general banking and relending purposes, the bank told the Philippine Stock Exchange on Tuesday. The five-year notes, to be arranged by Citibank and Standard Chartered Bank, got a BB- rating from global debt watcher Fitch Ratings. A BB rating indicates an elevated vulnerability to default risk, particularly in case of adverse changes in business or economic conditions over time. But business flexibility exists, which supports the payment of debt. A plus or minus modifier may be appended to a rating to denote relative status within major rating categories. In a statement, Fitch said the Yuchengco-led mid-sized universal bank's senior notes would constitute direct, unconditional and unsecured obligations of the bank. Hence, the borrowing will be equal in rank to its unsecured and unsubordinated obligations. Fitch noted that the bank has $150 million in senior notes due on February 24. RCBC is a mid-sized universal bank with total assets of P268 billion as of September 30 and has a network of 334 branches. The Yuchengco group owns two-thirds of the bank. "RCBC's credit profile is moderated by potential impairment pressures from its nonperforming assets (NPA), particularly investment properties and deferred charges," Fitch said in its report. Moreover, the bank's gross bad loan ratio has risen to 6.3 percent at the end of September from 4.2 percent in December 2008 amidst the global economic downturn, the rating firm pointed out. "Despite the foregoing risks and higher credit costs, RCBC's return on assets rose to an annualized 1.2 percent in [the nine-month period of 2009 from 0.7 percent in 2008], underpinned by the sharp rebound in treasury gains," it added. The bank's capital buffer, which has gradually improved over the years, and bad loan reserve coverage of 115 percent are also mitigating factors, Fitch said. "Capital impairment risks are likely to abate in line with the improved domestic economic outlook in recent months. Hence, the outlook on RCBC's issuer default rating is stable," Fitch said. — Norman P. Aquino, GMANews.TV