October 06, 2014

RCBC to sell 20% stake to Cathay Life

In a disclosure to the Exchange, Rizal Commercial Banking Corp. (RCB) said that it has chosen Cathay Life Insurance (Cathay Life) as the preferred bidder for the 20% stake in the company. Cathay Life is a wholly-owned subsidiary of Cathay Financial Holding (Cathay Financial), which is the largest publicly-listed financial company in Taiwan.

Cathay Life will subscribe to 124.340m primary common shares of RCB at P64/sh, hence allowing the bank to raise P7.957b in capital that would qualify as new Common Equity Tier 1 (CET1). In addition, Cathay Life will also acquire 118.936m shares from CVC Asia Pacific and 36.724m shares from the International Finance Corp also at P64/sh.

The parties are now working to sign the definitive transaction agreements, and then secure the pertinent regulatory approvals. RCB said that Cathay Life’s subscription to primary shares, if
consummated, would increase its CET1 ratio to 13.5% from 10.9%. Further, the bank’s board
has decided to place on hold its planned P4.5b stock rights offer, which was formally approved
by the PSE last week.

Our take: The transaction, if consummated, will allow RCB to partner with a financial company that has a regional presence. This may open expansion opportunities for RCB in the region, as well as access to Cathay Life and Cathay Financial’s clients.

Based on our rough calculations, the transaction values RCB at over 1.6x 2015E P/BV, a premium compared to the bank’s current valuation of about 1.4x 2015E P/BV - WealthSec