Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank) has asked its shareholders to issue up to $300 million of convertible bonds to supplement the bank's tier 2 capital.
The successful issuance of convertible bonds will help the bank improve its capital adequacy ratio (CAR) under Basel 2, which will be applicable from the beginning of 2020, raise medium- and long-term capital as well as expand operations.
The five-year maturity bonds will be offered on the international market under the consultancy of by BNP Paribas and Deutsche Bank.
The bank plans to issue bonds in the last months of 2018 or early 2019 subject to the competent authorities. But investors will have the right to convert the bonds into shares later on.
Investors’ demand to convert bonds into shares in the future will make HDBank plan to cap foreign ownership limit (FOL) as many banks do. HDBank is the only bank which still has 24.36 million shares, equivalent to 2.48 per cent of its current charter capital, available for foreign investors.
To ensure enough room for foreign investors to convert bonds in the future, HDBank may cap FOL at 30 per cent for the capital of newly-issued shares, equivalent to 90 million shares, to merger PGBank.
According to an analysis firm, the issuance of convertible bonds is considered a better option to improve the CAR than the plan on selling treasury shares that HDBank acquired as part of a merger with PGBank. However, this deal is in process and has just been approved in principle by the State Bank.
In addition to raising long-term capital to minimize the maturity risk on the balance sheet, international capital mobilization plan is the stepping stone for HDBank to take advantage of the merger of PGBank.
Before the merger, HDBank signed a cooperation agreement with Petrolimex, the bank's major shareholder. The cooperation is expected to bring great benefits to HDBank by utilizing the widespread retail system of Petrolimex and huge cash flow.
The completed merger of PGBank is forecasted to help HDBank’s pre-tax profit grow strongly by the end of this year thanks to profits and customer base of PGBank. Previously, in the first half of this year, HDBank gained more than VND1.65 trillion ($71 million) in after-tax profit, doubling over the same period last year.
In addition to the traditional banking business, HDBank’s growth is expected to be contributed from HDSaison, a financial company that provides unsecured loans. However, this segment is forecasted to slow down due to problems in the unsecured lending market over the last time.
In addition to growth prospects, HDBank is good at controlling asset quality with a low non-performing loan (NPL) ratio. According to the latest report, the bank's NPL ratio is 1.4 per cent (VND1.72 trillion or $73.8 million), including one per cent at the parent bank and the rest from HDSaison.
