DBP may raise 20% of capital stock through planned listing

By Luisa Maria Jacinta C. Jocson, Reporter

DEVELOPMENT Bank of the Philippines (DBP) is studying the possibility of raising 20% of its capital stock from its proposed initial public offering (IPO) under planned changes to its charter, its top official said.

“It’s something that’s being studied. But maybe no more than 20% (of our capital stock),” DBP President and Chief Executive Officer Michael O. de Jesus told BusinessWorld.

This would be equivalent to around P7 billion, which is 20% of the bank’s P35-billion capital stock, Mr. De Jesus said.

In March, DBP said it is looking to hike its capital stock to P300 billion to expand its products and services and support more development projects.

The Finance department is working on a proposal that seeks to amend the charters of both the DBP and Land Bank of the Philippines (LANDBANK) to increase their authorized capital stock and allow for their public listing.

“Initially, we’re looking at things like maybe just preferred shares. Maybe to make it more attractive, it should not just be preferred shares, but also common. All that is being studied,” Mr. De Jesus said.

He added that there is a “strong possibility” that the amendments to the banks’ charters will be finalized within the year.

The charter of DBP was last changed in 1998, which hiked its authorized capital stock to P35 billion from P5 billion previously.

Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said DBP’s initial plan for its listing is a “strategic move.”

“By limiting the amount of capital raised through the IPO, DBP can maintain a significant portion of ownership and control, which is crucial for a government-owned financial institution,” Mr. Arce said in a Viber message.

Issuing both preferred and common shares also “adds flexibility to their capital structure.”

“Preferred shares typically offer fixed dividends and priority over common shares in the event of liquidation, which can attract certain types of investors seeking stable income. On the other hand, common shares offer ownership rights and potential for capital appreciation, appealing to investors looking for growth opportunities,” Mr. Arce added.

Meanwhile, Aniceto K. Pangan, an equity trader at Diversified Securities, Inc. said the high interest rate environment may impact the bank’s public listing.

“The current market condition is illiquid with low valuation due to the elevated interest rates, and thus not conducive to fundraising,” Mr. Pangan said in a text message.

The Monetary Board has raised borrowing costs by 450 basis points (bps) from May 2022 to October 2023, bringing the policy rate to a near 17-year high of 6.5%.

Mercantile Securities Corp. Head Trader Jeff Radley C. See also said there are already many banks listed and most investors tend to prefer the bigger banks.

However, he said that an IPO is still viable for both DBP and LANDBANK.

“They should provide liquidity and volume for the stock so investors can buy and sell easily,” Mr. See said in a Viber message.

Both state banks should also ensure transparency throughout the listing process, Mr. Arce said.

“Clear communication about their financial health, growth prospects, and the intended use of proceeds can instill confidence in potential investors,” he said.

“Both should conduct thorough valuation exercises to determine the appropriate pricing for their shares. This involves analyzing financial statements, comparable companies, and market conditions to arrive at a fair valuation that attracts investors while not undervaluing the institutions,” he said.

Both banks should also make sure to showcase the investment opportunity of the IPO by highlighting “unique value propositions and growth potential” as well as strong corporate governance practices and risk management frameworks, Mr. Arce said.