FinanceAsia Country Achievement Awards - Philippines

Best Domestic Commercial Bank: Bank of the Philippine Islands

There really was only one possible winner in this category: Bank of the Philippine Islands. BPI finalized two brilliant mergers in April this year - the BPI-Far East Bank merger and the BPI-Ayala Insurance merger.

The merger of BPI and Ayala Insurance Holdings Corporation is the first full integration of a bank and an insurance group in the Philippines and in the region. BPI obtained the approval of the central bank, Bangko Sentral ng Pilipinas to invest up to 100% in insurance companies, higher than the allowable 51%. This new structure positions the bank as one of the country's leading providers of financial services and improves its fee-based revenues. The insurance companies can likewise improve efficiency in the delivery of products and services using the bank's various and wide distribution channels.

The merger of BPI and Far East Bank was widely welcomed. On a minor but relevant aspect, the accounting treatment was pooling of interests unlike the purchase accounting method used in the other big merger in the country involving Equitable and PCIBank, where the former took a sizable charge against future income due to the amortization of goodwill.

The merger created a dominant financial service franchise in the Philippines and positioned the merged bank as the leader in all of its core businesses, both traditional and non-traditional commercial banking products. The merged bank has a more balanced loan portfolio. It further strengthened the shared leadership position of BPI and FEBTC in the top-tier corporate segment. FEBTC's positioning in the middle market complements BPI's exposure in this segment.

BPI retained its number one position in the consumer market for both mortgage lending and auto finance. BPI's pole position in the trust business was strengthened after the merger to 34% from 19%. BPI's market share of the remittance business rose from 15% to 20%.

Considering Metrobank's recent acquisitions, such as Asian Bank with Global Bank and Solid Bank, BPI is only second in terms of branches. While BPI plans to maintain its 679 branches it will reconfigure the mix of branches in favour of kiosk or supermarket branches. As such, traditional branches will be converted to kiosk branches. BPI has the largest network of ATMs with close to a thousand sites.

Based on market capitalization, the merged bank is at par with the largest players in the region. In the near term BPI's focus is primarily the domestic market, but the merger is a step towards regional competitiveness. The bank also gained new partnerships with DBS Bank and Sakura Bank as shareholders.

It ranks in terms of total assets as number two, up from number three before the merger. BPI has the largest capital base. Prior to the merger, it ranked number third. The capital adequacy ratio is way above the BSP and BSP minimum requirement.

BPI profitability profile is consistent with its conservative policies. Return on equity for 1999 (pre-merger) was 13.7%, ahead of its peers, and the 4% inflation rate and benchmark treasury bill rate of 10%. The merged entity will still be among the highest among local banks.

BPI has always maintained the highest asset quality among local banks. Pre-merger non-performing loans (over 90-days past due) as of the year end was 6.8%, the lowest among the local banks. The bank also has the industry's highest loan loss reserve cover of 71%, in addition to a collateral cover of 55%. The post merger NPL figure of 10.4%, with reserve cover of 60%, is still the highest in the industry.

Best Foreign Commercial Bank: Citibank

Citibank has yet to find any credible challengers to its crown. While foreign banks in the Philippines are practicing 'cautious immersion' this year, Citibank has demonstrated its strong commitment to the country. Citibank is the largest foreign commercial bank in terms of customers, assets, revenues, employees, number of domestic branches. About 98.5% of its 1,300-strong workforce are local employees. More importantly, in terms of deposit volumes, it is the only foreign bank to rank among the top 10 banks in the country. It has consistently maintained the highest asset and deposit base among the foreign banks in the country for the past two decades.

In 1996, Citibank obtained the first-ever derivatives licence from the central bank, the Bangko Sentral ng Pilipinas. Its derivatives franchise now encompasses 40% of the market. Landmark derivatives deals quickly followed, such as the first peso FX options, first peso interest rate and cross currency swaps, first long-term peso LTFX, first Europeso bond for the International Finance Corporation.

Building on this expertise, Citibank offers several commodity-hedging transactions including, since last year, petroleum hedges. Citibank also has the largest Foreign Currency Deposit Unit (FCDU) and is the largest foreign currency lender, serving 700 active corporate accounts, including the major multinational corporations. Citibank provides full cash management services to more than 2,000 companies providing them with such proprietary solutions as Citibanking, SpeedCollect, Citicommerce, and PayLink. According to central bank records, Citibank opened the largest volume of letters of credits among foreign banks, fortifying its stronghold in trade finance.

Citibank has made a strong contribution to the development of the local banking industry. It played a major role in redefining the regulations for the issuance and sale of asset-backed securities by providing expert opinion and information to the Securities and Exchange Commission and the central bank.

Citibank is the settlement bank for all local US dollar electronic transfers, executed through Philippine Domestic Dollar Transfer System (PDDTS), a clearing solution that the bank pioneered in the Philippines in 1994. Nevertheless, while same-day dollar clearing is available, it still takes three days to clear peso cheques.

Citibank has executed several major deals that display its wide range of transactions. It arranged the financing of $500 million to the Philippine power industry; the securitization of PLDT's dollar-denominated receivables; co-arranged for the $500 million loans to National Power and Philippine National Oil Corporation under the Miyazawa initiative; and was a financial adviser to the largest IPP project in the Philippines, the Korea Electric Power Corporation's 1,200 MW Ilijan combined cycle power project.

Certainly, other foreign banks will charge into battle with isolated transactions and niche products, but Fortress Citibank will be impenetrable for years to come.

Best Domestic Investment House: BPI Capital Corporation

One after another, the candidates for this award failed to clear our hurdles until there was only one house left in contention -BPI Capital Corporation.

The independent local houses, mostly manned by brilliant Wharton, Harvard, and AIM boys, have been battling a liquidity crisis. Nevertheless, they perfected the art of structuring a deal within the constraints of a small market. Capital preservation, plain-vanilla M&A, and balance sheet strength dominated the local capital markets scene.

The scarcity of deals prompted issuers and M&A clients to move towards the bank-affiliated investment houses, whose balance sheets allowed them to underwrite without worrying about a capital wipe-out if the deal miscarried.

In the advisory arena, the few deals mandated to the boutiques were fairly insignificant. Among the bank-affiliated investment houses, BPI Capital cornered the choicest deals in the past year.

BPI Capital arranged the most visible M&A in 1999 in the country - the merger of the Bank of the Philippine Islands with Far East Bank - to form the largest bank in the country in terms of assets. This transformed BPI into one of the top 15 banks in Asia by market capitalization.

Finding the right banking partner in terms of corporate culture and business segmentation was among the highlights of this mandate.

Another transaction that has transformed BPI into a full service financial institution was the BPI Capital-arranged acquisition of Ayala Insurance Holdings Corporation.

In one of the better-structured deals in the country last year, BPI Capital assisted JP Morgan to structure a tax-efficient divestment of its 13% stake in BPI, the parent company of BPI Capital.

BPI Capital likewise structured the entry of Singapore's DBS Bank into BPI, through the acquisition of the interests of the major shareholders of both FEBTC and BPI prior to their merger.

Among the advisory services and capital-raising activities that BPI Capital executed were the $50 million convertible of Kuok Philippine Properties; advisory to Procter & Gamble, Deutsche Telekom, and Ford Motor Credit. It was also the only Philippine investment house to participate as co-lead manager for Asia in the popular Goldman Sachs IPO.

Best Foreign Investment House: ING Barings

ING Barings takes the title of Best Foreign Investment House in the Philippines, having fought valiantly in an era of economic standstill, a country of full of dramatic surprises, and a market suffering from a dearth of deals. It has aggressively pursued deals in the past year, and pulled off a relatively balanced deal portfolio considering the scarcity of corporate finance action in politically-charged Manila.

Among its best known transactions and probably the only equity deal to come out of the market last year was the $139 million Philippine depositary receipt (PDR) issue for ABS-CBN, the largest broadcasting company in the country. A special purpose vehicle was incorporated to allow foreign investors to directly participate in the media sector, which according to the Philippine constitution should be 100% held only by Filipinos. As joint global coordinator and joint book runner with Jardine Fleming, the PDRs were placed with US (33%), European (37%), Asian (20%) and other (10%) investors.

ING Barings scored high when the Government of Singapore Investment Corp (GIC) offered to purchase 11.8% of Filinvestment Development Corporation, one of the country's largest residential developers, as result of ING Baring's pre-marketing efforts. That GIC offered to purchase the entire block being offered valued at $49 million cutting short the planned marketing roadshow was a mild surprise.

ING Barings also steered through the only local currency equity-linked deal in the Philippines in 1999. While originally designed by ING Barings as a $5 million private placement, Metro Pacific's convertible preferred offer ballooned to $18million. Metro Pacific is the Philippine flagship of Hong Kong-based First Pacific Group.

ING Barings dominated the local M&A scene, landing several juicy mandates. It is the adviser of the ongoing sale of the government's stake in Philippine National Bank, the former government depository. In the banking sector, it advised the Lim and Madrigal groups in the sale of their 52% in Solidbank to Metrobank for $167 million. Then, in a curious twist, Metrobank hired ING Barings to assist in the purchase of the Bank of Nova Scotia's 38% stake in Solidbank for $95 million.

In mid-1999, ING Barings advised the JG Summit Group of the Gokongwei family in the sale of 72% of PCIBank to Equitable Bank for $837 million, paving the way for one of the biggest bank mergers in Philippine history.

Earlier this year, the US$1,384 million merger of Philippine Long Distance Telephone Company and Smart was finalized. ING Barings advised the First Pacific Group in this transaction. It also advised the second largest fruit juice company in selling out to the market leader for an undisclosed amount.

Among the more popular transactions for ING Barings was the acquisition of Chow King Foods by Jollibee in the vibrant fast-food sector. This deal allowed Jollibee to fortify its dominance by converting Chow King, its strongest competitor, into an ally.

In the property sector it advised SM Prime Holdings in the valuation of $68 million assets from other companies in the SM Group.

As joint lead arranger for the Republic of the Philippines' $610 million notes facility last year, ING Barings structured a hybrid transaction comprising a fixed and a floating rate tranche under a common set of documentation. ING Barings' strong connections with the blue-chip companies facilitated several syndications for Meralco, Shell, Smart, PLDT and Caltex.

Not only has ING Barings dominated the equity origination and M&A scene in Manila, it has likewise maintained its powerhouse status in stockbroking. Decidedly number one in trading volumes in the three years to date, despite the entry of other foreign stockbrokers, ING Barings perfected its balancing act of equity, debt, M&A, and stockbroking expertise.

ING Barings' commitment, on-the-ground presence, and deal-making skills in a scarce market like the Philippines deserve to be recognized.