June 4 (Bloomberg) -- Henry Sy went from running a shoe store in Manila to become the Philippines’ richest billionaire and owner of the nation’s largest retailer. Now the Chinese immigrant plans to raise $1 billion to expand his bank.
Sy’s BDO Unibank Inc., the nation’s largest lender by assets, will price a rights offer tomorrow, it said in May. The share sale will be a record for the nation and give the bank funds to compete for infrastructure lending, said Teresita Sy-Coson, eldest child of the 87-year-old Sy and vice chairwoman at his flagship company and the parent of BDO.
The bank aims to reduce its dependence on consumer loans by tapping credit demand from the nation’s biggest companies, including Ayala Corp. and San Miguel Corp., as they bid for $16 billion in infrastructure projects unveiled in 2010 by President Benigno Aquino. The fund infusion will also bolster Manila-based BDO’s risk buffers and spur overseas expansion, Sy-Coson said.
“Infrastructure is not our area of expertise, but we intend to join the government’s initiatives by providing funding for those who will take up those projects,” Sy-Coson, 61, said in a May 21 interview. “We want to be a real nationwide bank and at the same time have some play in the region.”
Citigroup Inc., Deutsche Bank AG, JPMorgan Chase & Co., United Overseas Bank Ltd. and BDO Capital & Investment Corp. are managing the sale of 896 million shares in a one-for-three rights offer from June 18 to June 27, according to a May 24 filing. The shares were valued at 59.1 billion pesos ($1.36 billion), based on the June 1 closing price. BDO has climbed 15 percent this year, even after falling 6.4 percent to 66 pesos in Manila trading on June 1.
‘A Good Deal’
“I doubt anyone will pass up the rights offer,” said Jesse Ang, chief representative in the Philippines for International Finance Corp., which gave BDO a $20 million loan in 2002. “You are buying shares in a good bank at a discount.”
A successful rights offer may be the biggest in Asia this year, excluding Japan.
BDO “has grown phenomenally” since IFC, the private-sector affiliate of the World Bank, invested in the bank to bolster development of the local capital market, Ang said. IFC has a 5 percent stake in BDO, according to the investor-relations department at Sy’s SM Investments Corp.
Sy, who emigrated from China at the age of 12, started selling rice, sardines and soap in his father’s Manila store in 1936. He opened a shoe store in 1948, and eventually built his business empire in the 1980s by opening malls that sold low-priced consumer goods.
His retail operations include 176 department stores, supermarkets, grocers and hypermarkets. The family’s flagship SM Investments is the country’s third-largest company by market value, and his publicly traded holdings are valued at about $9.9 billion, according to data compiled by Bloomberg.
Sy bought Acme Savings Bank, set up in 1968 as a thrift bank, in 1976 and renamed it as Banco do Oro Savings and Mortgage Bank the following year. The lender sold shares in an 1.8 billion-peso initial public offering in May 2002. SM Investments owns about 46 percent of BDO, according to its annual report, giving Sy a stake worth about $1.8 billion.
BDO’s net income grew 15 percent in the first quarter, lagging the 40 percent profit growth at Metropolitan Bank & Trust Co., the nation’s No. 2 bank by assets, and the more than doubling at third-ranked Bank of the Philippine Islands.
Bank of the Philippine Islands, which has 20 percent less assets than BDO Bank, has a market value of 242 billion pesos, and Metropolitan Bank & Trust has a valuation of 187 billion pesos. BDO Bank has a 177 billion-peso market value.
BDO’s rivals “are doing quite well” and “can very well overtake us in terms of assets,” Sy-Coson said.
BDO emerged as the nation’s biggest lender in 2008 following nine acquisitions for a total of about $1.34 billion starting in 2001, according to Bloomberg data.
The bank has kept the top spot by expanding credit faster than competitors. BDO’s loans grew about 23 percent annually in the four years ended in 2011, compared with 15 percent for the industry, according to Alfred Dy, an analyst at CLSA Asia-Pacific Markets.
Profit at BDO rose 19 percent to 10.5 billion pesos last year, with its 24 percent growth in loans outpacing the 19 percent industry average, it said in February. The bad-loan ratio also shrank to 3.4 percent from 4.7 percent.
“These infrastructure projects give BDO Bank the opportunity to diversify its loan portfolio,” said CLSA’s Dy.
BDO should concentrate on attracting more depositors, rather than selling shares, said Daniel Picache, an analyst at DBP-Daiwa SB Capital Markets.
“I wouldn’t say that this is a game changer for BDO because capital raising through equity isn’t sustainable since it will create dilution,” he said. “A bank’s main fund-raising should be through growing its deposit base.”
BDO announced on May 28 that it would buy assets of Rural Bank of San Juan for an undisclosed amount. The lender isn’t closing the door on further acquisitions to expand its branch network, Sy-Coson said before the announcement of the purchase.
The Philippine economy expanded 6.4 percent last quarter, the fastest pace since 2010 and exceeding economists’ estimates as President Aquino boosted government spending to counter faltering global demand.
San Miguel President Ramon Ang reiterated on May 23 that the nation’s largest company plans to join bidding for airport, road and infrastructure projects. Ayala has a venture with Metro Pacific Investments Corp. to take on railway projects.
“BDO’s aggressive capital-raising is an indication the group doesn’t want to be left out of opportunities that will be opened up by the government’s infrastructure program,” said Alex Pomento, a strategist at Macquarie Group Ltd. “The size of the new capital also puts BDO in a place to pursue opportunities other than growing its loan books aggressively, like acquisitions.”
To contact the reporter on this story: Ian Sayson in Manila at firstname.lastname@example.org