PNB-Allied-BPI merger to lift Lucio Tan banks’ credit rating – Moody’s

MANILA, Philippines – If the reported merger between the banking units of tycoon Lucio Tan and the Ayala group pushes through, better credit rating awaits Philippine National Bank (PNB) and Allied Banking Corporation (ABC). 

In its Credit Outlook released on Monday, November 26, Moody’s Investors Service Singapore Pte Ltd. analyst Simon Chen and associate analyst Shaoyong Beh said the merger with Ayala-led Bank of the Philippine Islands (BPI) will be “credit positive” to Tan’s banks.

“BPI’s acquisition of PNB is credit positive for PNB and ABC because BPI is fundamentally stronger than the other two banks, and as such will be able to improve their credit profiles. Because BPI is the strongest among the three in terms of asset quality and risk-adjusted profitability, we expect the merger to have a positive effect on PNB’s and ABC’s respective financial metrics,” Moody’s said.

Moody’s noted BPI’s credit rating is at Ba1 stable, while the PNB was at Ba2 stable and ABC’s is at Ba3 positive. 

The international credit rating agency, however, said that it was still difficult to provide a view on the credit implication of the merger on BPI. This, it said, was largely due to the lack of financial details regarding the transaction.

However, Moody’s said the preliminary assessment is that the transaction will not place a significant burden on BPI’s credit profile.

“Assuming that BPI pays 2x PNB’s and ABC’s book value for Lucio Tan’s stakes in both banks, and funds the acquisition through a share swap based on the last traded share price prior to the announcement of the acquisition, we estimate BPI’s Tier 1 capital ratio would increase to 16% from 14.5%, based on September 2012 financials,” Moody’s said.

“In another scenario in which BPI pays for the acquisition using a 50-50 mix of cash and newly issued equities, we estimate BPI’s Tier 1 capital ratio would decrease to 11%,” it said.

Ayala chief finance officer Delfin Gonzalez Jr. said the merger between BPI and PNB may be completed this year. 

At the end of June, BPI was the 3rd largest bank by assets in the Philippines, while PNB was 7th and ABC was 13th.

Post-merger, the 3 banks would form the largest banking group in the Philippines, with an estimated market share of 19% of system assets. – Rappler.com