CVC to sell most of its stake in Philippines lender RCBC

The investment was approved by the RCBC board in September - resulting in the postponement of a PHP4.5 billion rights issue - but still required shareholder approval before a definitive agreement could be signed. Completion is expected in the first quarter of 2015, pending regulators giving the deal the green light.

Cathay Financial Holding said in a statement that Cathay Life would subscribe to 124 million new shares in RCBC at PHP64 apiece and buy 156 million existing shares held by CVC and the International Finance Corporation (IFC) for the same price. This represents a price-to-book ratio of 1.57x. Shares in the company are currently trading at around PHP46.

CVC currently holds 139.2 million shares, or a 10.91% stake. The private equity firm paid PHP4.96 billion (then approximately $115 million) for a 15% interest in 2011 and completed another partial exit last year, raising around $45 million. When the RCBC announced that Cathay's offer had been approved it indicated that CVC would sell 118.9 million shares, allowing the PE firm to take away PHP7.6 billion.

IFC bought a 7% stake in RCBC for PHP2.1 billion in 2010 and now owns 11.34%, or 144.6 million shares. It will sell 36.7 million shares to Cathay for PHP2.3 billion.

RCBC, which is majority-controlled by the Yuchengco family, is the fifth-largest lender in the Philippines by assets. Its retail banking operation serves six million customers through a network of 448 branches, 1,181 ATMs and mobile and internet platforms.

Cathay said its interest in the asset was driven by the rise of ASEAN as a manufacturing base for multinational and Taiwanese corporations, as well as the region's growing affluence.

The Organization for Economic Cooperation and Development estimates that the 10 ASEAN members will see average GDP growth of 5.4% between 2014 and 2018, with the Philippines alone achieving 5.8%. Furthermore, the Philippines banking sector is expected to see compound annual growth of 13% over the same period, with a net interest margin above 3%.

Strategic interest in the country's banking sector is also the result of a decision to scrap the 60% cap on foreign ownership of domestic lenders, as well as the limit on the number of wholly-owned overseas banks allowed to operate in the country.

This should also bring much-needed consolidation. The Philippines has around 700 banks and the seven largest commercial players account for two thirds of total industry assets. There is also a substantial gap between the top three players and fourth place.

The chief consolidators are tipped to be financial institutions from within Asia that are seeking to create regional franchises, although they will likely have to make do with minority stakes initially. Groups from Japan, Malaysia and Taiwan are said to be leading the charge. Although private equity firms are believed to be looking for deals, strategic players are expected to dominate.

One other private equity firm currently holds a minority stake in a local lender: Northstar Group is invested in Philippine Bank of Communications.

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• Topics
• Financials
• Exits
• Southeast Asia
• Trade sale
• Philippines
• Southeast Asia
• CVC Capital Partners
• Financial Services
• Taiwan (China)
• Exit