CVC ramps up focus on Filipino finance

CVC bought its stake for approximately 4.96 billion Philippine pesos ($115 million), which RCBC aims to use for future acquisitions of SME-sized banks in the Philippines, the group announced, as well as support RCBC's loan book, which is slated to go to corporate clients in the consumer finance, SME and micro-finance segments. The investment specifically raises RCBC's capital reserves by 3.7 billion pesos ($85.7 million), which boosts its Tier 1 capital reserve level to 14.91%.

Brian Hong, Managing Director at CVC Asia Pacific, told AVCJ that the transaction represents the "first major investment" in the Philippines for CVC. Several reasons including the market's vast GDP growth and RCBC's own position in the market compelled the firm to invest, he said, and these components will likely drive more deals in the future.

"I think this is not your typical PE investment deal in many respects," Hong said. "We were drawn to the resiliency of the Philippines' economy - the country has had something like 46 consecutive quarters of GDP growth, even during the recession - and on top of it the Philippines is one of the most under-banked markets in the region. In fact, it has the second-lowest banking penetration rate after Indonesia, at 31%."

A plan of expansion

It's this reality that has prompted RCBC the past few months to shore up it cash reserves, which will come in handy when opportunities present themselves. In fact, CVC's news comes two months after RCBC sold a 7.2% stake to the World Bank's investment arm IFC, for more than 2.1 billion pesos ($49 million), which the company said would also go toward RCBC's future growth and to reinforce its loan reserves.

As part of its growth plans, RCBC Savings Bank aims to open up to 20 branches this year, and awaits regulatory approval for its first five license applications, The Philippine Star reported. It also looks to install up to 150 ATMs across the country.

CVC is slated to help direct RCBC's growth scheme as the firms' 15% stake acquisition buys it two seats on RCBC's board. CVC has bought its stake through the purchase of outstanding common stock via its Hexagon Investment Holdings Limited (HIHL). Under the terms of the agreement, RCBC and certain shareholders will sell 171 million common shares of RCBC to HIHL for 29 pesos ($.67) per share.

According to RCBC's website, the company is among the Philippines' five largest private domestic commercial banks, claiming that it "triumphantly [rode] out the global economic crisis with a P3.31 billion ($76.6 million) net income in 2009, a growth of 54% from 2008." For the first quarter of 2011 it posted $23.6 million in net income - 5% higher than in 2010 - and claims total consolidated resources of $7.2 billion.

"RCBC represents a very attractive investment opportunity for CVC in one of the fastest developing banking markets in Asia," Tze-Ching Chan, senior advisor to CVC and a member of CVC's Global Financial Institutions Advisory Board, publicly said.

A focus on finance

According to Hong, the last investment the firm made in the Philippines came in 2000, when it fully acquired packaging material producer Steniel Manufacturing Corporation. A statement at the time noted CVC purchased 72.6% of the company from Metro Pacific Corporation for 425.5 million pesos (then $9 million), making that deal significantly smaller.

While the Philippines represents a diverse play for CVC, whose Southeast Asia investments tend to come out of Singapore, the financial sector is a more familiar area. One year ago, CVC invested HK$2.14 billion ($275.7 million) in Hong Kong-based non-banking financial services group Sun Hung Kai Financial, taking a 19% stake.

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• Topics
• Southeast Asia
• Financing
• CVC Capital Partners