By Enrico Dela Cruz and J.R. Wu
Cathay Financial Holding Co Ltd is set to acquire a fifth of the Philippines' Rizal Commercial Banking Corp (RCBC) for about $400 million, the latest sign that Taiwanese financial firms are moving more aggressively to expand outside their home market.
Cathay Life Insurance Co Ltd, a unit of Cathay Financial, has become the preferred bidder for 20 percent stake, taking advantage of new rules in Taiwan that allow insurance capital to be used in acquisitions overseas, but not be counted toward an insurer's overall overseas investment quota.
Taiwan's regulators are encouraging financial institutions to expand in Asia as their home market is overcrowded. At the same time, Philippine banks are drawing overseas investment after Congress passed a law allowing foreign groups to take full control of local banks.
Many Philippine banks have, however, been reluctant to sell more than a minority stake.
Lorenzo Tan, chief executive of the Philippine's fifth largest bank by assets, told reporters that the lender was attracted to Cathay's asset management capability.
"There were several interested investors, but we chose them because they can add value to our business," he said.
"They are in Vietnam, Cambodia, they have office in Myanmar, they operate in countries that we are not familiar with," he added. RCBC would also expand Cathay's access to Southeast Asian markets, he said.
Under the terms of the deal being discussed, Cathay Life will pay 64 pesos per share, a 19 percent premium to RCBC's previous close.
It will buy a 9.7 percent stake by subscribing to new shares and purchase the remainder from Hexagon Investments B.V. and International Finance Corp.
A potential deal, including details about the share price, had been flagged by media in recent months but despite this RCBC's share price has yet to rise that far.
On Tuesday, they climbed as high as 57 pesos before paring gains to end at 54.15 pesos, up 1 percent on the day.
Luis Limlingan, head of business development and analyst at Regina Capital Development Corp in Manila, said despite the muted market reaction, he saw it as a good deal as RCBC would be able to take advantage of Cathay's expertise in insurance.
"I don't think the market fully appreciates the impact of the deal," he said.
An agreement is still subject to approval from Philippine and Taiwanese regulators.
Tan also said that RCBC has shelved a stock rights offer that was expected to raise around $100 million as the lender no longer needed the funds.
"We will have enough capital to last us up to 2018," he said.
In addition to Cathay's move, Taiwan's CTBC Financial Holding Co Ltd said last month that its insurance arm was taking a 19.99 percent stake in the insurance unit of China's Agricultural Bank of China.
