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Plans to raise Php60Bil in capital through a stock rights offering

To raise Php60Bil equity capital. In a disclosure submitted to the exchange today, BDO announced that its Board of Directors has approved a plan to raise Php60Bil in equity capital through a stock rights offering. The additional capital is intended to support the bank’s medium term growth objectives. No other details regarding the planned offering were provided in the disclosure.

Rights offering to address concerns on capital requirements. In our last few reports on BDO, we have been noting that a capital raising activity is a possibility given its relatively low capital levels. Note that as of end June, BDO’s CET1 level ended at 11.3% and 10.0% on a consolidated and parent-only basis respectively. These were just slightly higher than the 8.5% requirement under Basel III. In addition, the implementation of the DSIB is expected to bring the minimum CET1 requirement to 11.0% (gradually implemented from 2017 to 2019). With the planned Php60Bil stock rights offering, we estimate that BDO’s CET1 could add ~4% in CET1 capital, effectively addressing concerns on its ability to support its growth over the next few years. Nevertheless, the additional shares from the rights offering could weigh down its share price over the short term as the market absorbs the additional shares. We currently have a HOLD rating on BDO with an FV estimate of Php128.00/sh based on 2.0X 2017E P/BV.

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