BDO Tier 2

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25701
Company name	Banco de Oro Unibank Inc.
Country	Philippines
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	September 21, 2007
Projected board date	November 1, 2007
Previous Events	Invested: November 21, 2007 Signed: November 15, 2007 Approved: November 15, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Banco de Oro- EPCI, Inc. (BDO) is the second largest universal and commercial bank in the Philippines, with total assets of $12.6 billion and a capital base of $1.1 billion as of June 30, 2007. BDO, an IFC investee company since 2002, offers a wide range of products and services to its corporate, commercial and retail clients. These include traditional loan and deposit products, as well as treasury, trust banking, investment banking, cash management, retail cash cards, insurance, trade finance and credit card services. The bank has also strengthened its consumer lending business by offering an expanded range of consumer finance products, including personal loans, residential mortgages, auto loans and credit card services. BDO is listed in the Philippine Stock Exchange. In January 2006, Primebridge Holdings, Inc., a member of the SM Group, issued Global Depositary Receipts (GDRs) with BDO common shares as underlying securities. These GDRs are listed on the London Stock Exchange.

The proposed project is IFC’s participation in up to $150 million of BDO’s planned public issuance of Philippine Peso denominated unsecured subordinated notes with an expected issue size of PHP10 billion (approximately $217 million), that would qualify as Lower Tier 2 capital under the regulations of the Bangko Sentral ng Pilipinas (Central Bank).

Anticipated development impact of the project

The project has many development impacts:

- Support consolidation in the Philippine banking sector by supporting a strong local financial institution that plays a consolidator role. Consolidation of the banking industry in itself has the following development impact, namely:

- fewer players imply better capitalized banks that are better able to weather external economic shocks such as the 1997 Asian financial crisis,
- cost efficiencies that benefit both the banks and its customers, and
- bigger banks are in the best position to introduce innovative financial products and services.

- Broadening access to finance. As banks grow, the need to diversify earning streams is perceived. With intense competition in the traditional growth areas such as corporate banking, banks are compelled to seriously consider serving underserved sectors. BDO is best positioned to show leadership in terms of product development and service delivery to underserved consumer and SME client groups.

- Capital market development. The proposed project supports the development of the local capital markets through the issuance of tradable long-term local currency denominated corporate bonds. The issuance of long-term corporate bonds would provide institutional and retail investors an alternative long-term investment vehicle to the more traditional government securities. The trading of these bonds will also contribute to the development of the secondary market.

IFC's expected development contribution

- IFC’s role of financier and comfort provider:

This project is expected to be the first issuance of Lower Tier 2 tradable paper in the Philippines. IFC’s participation and stamp of approval will strengthen the corporate note issue and help BDO raise money through the local capital markets.

- IFC’s role is to support the development of the local capital markets by participating in a new financial product, i.e. tradable Tier 2 subordinated notes.

- IFC’s role as advisor:

Going forward, IFC can provide advisory services to the Bank especially in sectors that it is looking into that has historically been underserved or untapped such as Sustainable Energy Finance and SME/Microfinance.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. During appraisal, IFC will analyze the FI portfolio for types of transactions, size, tenor and industry sectors and determine the Applicable Requirements, if any, that would include a combination of:

- The IFC FI Exclusion List and/or;
- The applicable National Environmental and Social Laws and regulations and/or;
- The IFC Performance Standards.

While the client is an existing client, considering that the project will apply the new Environmental and Social Policy framework, IFC will review the effectiveness of the implementation of the requirements under the existing transaction. IFC will also review, if required, the capacity of the FI to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS).

If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS. Based on the review, the project will be required to:

- Develop an, or upgrade, if necessary, any existing SEMS, prior to disbursement to the satisfaction of IFC;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Commit to implement the SEMS, to ensure that its investments/activities supported by IFC financing are in compliance with the Applicable Requirements;
- Commit to take action to remedy any gaps in SEMS implementation on an ongoing basis;
- Submit a periodic report to IFC as per a format to be provided by IFC.

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