Banco de Oro Lower Tier II Notes
6 November 2007Banco de Oro will offer to the public PhP 10B worth of unsecured and subordinated notes as part of its capital build up. It will have a maturity of 10 years but Banco de Oro may call it after 5 years. The coupon will be based 7% paid semi-annually. The coupon will incorporate a step up rate if the issuer does not call the note after 5 years. Interest income for individuals is exempt from tax. The issue is negotiable however, the applicable withholding tax will apply on the interest earned based on the length of time the note is held. Minimum amount is PhP 500,000.00.
These notes are a direct, unconditional and unsecured obligation of the bank. They are junior to bank deposits and other senior forms of indebtedness but are senior to all classes of equity securities. They are not bank deposits and are therefore not covered by PDIC.
The offer period begins tomorrow and ends on November 16.
Should you invest in this issue? Depends on your portfolio and your view on interest rates.
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how much minimum investment?
Sorry should have included that from the start. It’s 500,000.00.
Sir Prometheus, would it be possible to further elaborate on the term “unsecured”? Does this mean if BDO defaulted on their loan, you investment vanished into thin air?
Would you recommend this BDO notes to someone who is trying to diversify his investment?
If I’m interested, how do I go about buying these notes?
Unsecured means that it is not secured by any sort of collateral. It is clean. Most bond issues are usually clean. There are issues that are secured by receivables (from..dare i say it? home mortgage payments, tax collections, etc.. If BDO became bankrupt and all its assets liquidated the depositors would have first crack at the proceeds followed by the senior and secured debtors; next are the holders of this note; and then whatever is left is distributed to the shareholders.
if you are looking for a reasonable fixed return with minimum risk, then i think you can invest in this issue. it is negotiable so if you spot another investment 1-2years down the road and interest rates have not moved up by much, you can sell it and pay 20% withholding tax on your interest earned which is still higher than 1-2year GS.
if interested just go visit any hsbc, bdo, or bdo private bank office.
Thank you very much for your very clear explanation, Sir Prometheus. Since I’m new to this kind of investment, I hope you won’t mind me asking some more follow-up questions.
If I want to sell this note in the future, who will I sell this to? Sell it back to BDO? What about the selling price, is there a fix price or it will depend on conditions prevailing at the time I wish to sell the note?
Again, thank you very much for taking the time to explain these things to me.
diaph, hsbc will act as the market maker for this issuance which means they will provide a bid if no one else will buy it off you. to sell, just go to the banker who sold it to you and if he provides you with an acceptable bid from hsbc, you present your registry confirmation (important not to lose!), maybe the purchase invoice, and a signed letter of instruction ( which they will provide) and sell!
the hsbc bid will depend on prevailing market conditions at the time you wish to sell which is why you need to have an outlook on interest rates.
hirap ng bonds. like on demand, it can be sold or bought, as in if i call? how long waiting time? how long are trading hours?
yes it can be sold just like that.
client: hello banker i want to sell my bdo note. here are the documents you need. can you ask hsbc for their bid and offer?
banker: ok ma’am i will call them and i will get back to you.
client: thanks, please ask them for a computation of the sale.
(banker calls up her contact in bdo or hsbc)
banker: ma’am their bid is at 7.03%. it is already past 11am so this will be for value tom.
client: which means i will get my money tom right?
banker: yes.
client: ok done.
you can trade even in the afternoon up to 4pm. for other bonds you don’t need to deliver any document. a phone call will suffice.
boss D, not sure if bond is as liquid as stock in Phils, but i’m sure they offer better return than my lowly time deposit / T-bills. But stocks still offer the best return, thats why I won’t be touching my stock fund in case I decide to buy this BDO note.
Sir Prometheus, one more question. How do I get the interest from the bond? I’m assuming either it is mail to me or I have to open a bank account in the bank where I bought the note so that they can just bank it into my account?
Hope you won’t mind me asking this personal question. You seems to be the only one posting information (basic bond info as well as specific company bond info) about bonds here in FM, are you in any way connected with the local bond industry? Or you’re just a knowledgeable bond investor?
guys,
the bond market is much more liquid than the our local stock market but of course there are bonds which are more liquid than others.
diaph, if you don’t have an account with any of the aforementioned banks you can have the checks mailed to you.
i am a relationship manager with BDO Private Bank.
no.
Would you know if BDO has any plans to have the notes rated? Otherwise, it’s kinda risky to invest in right? E.g. Metrobank’s tier 2 notes were rated by Moody’s recently.
No idea if they plan to have it rated. While a rating helps bring prestige to an offering, it is actually used by institutional investors whose investment guidelines require a credit rating for investments they are considering to include in their portfolios. However, as the recent sub-prime mess will attest, credit ratings even by S&P, Fitch, or Moody’s is no guarantee that the investment is low risk. Since you brought up Metrobank, it would be a simple matter of comparing the 2 banks to get an idea of the risk you are taking on. At the end of the day, you still have to do your homework.
Yeah you’re right re: subprime credit crisis and ratings agencies. Tough decision but I guess it all boils down to how much risk investors are willing to take. Thanks for the inputs prometheus!