Bonds you can trust in 2021
UPDATE:
Due to the strong demand, this offer has been closed closed early.
Thank you to all investor clients for your trust and support. To learn more about other available investments, please visit the Fixed Income page.
As part of its approved bond and commercial paper program, Metrobank is issuing at least Php 10 billion, 5.25 year peso fixed-rate bonds at 3.60% annual interest due 2026. Offer period is from May 6 to 24, 2021.
Issuer: Metropolitan Bank and Trust Company (“MBTC”)
Issuer Rating: Baa2 rating for its long-term local currency bank deposits from Moody’s Investor Service and BBB- Long-Term Local Currency Issuer Default Rating from Fitch Ratings.
Issue: Fixed-rate Bonds due 2026 (the “Bonds”) constituting direct, unconditional, unsecured and unsubordinated obligations of MBTC, which shall form part of the Issuer’s P54.5 billion Bond and Commercial Paper Programme.
The Bonds are exempt securities within the purview of Section 9.1.1 of the 2015 Implementing Rules of the Securities Regulation Code.
Issue Rating: Unrated.
Issue Amount: Ten Billion Pesos (P10,000,000,000) in aggregate principal amount. The Issuer reserves the right to exercise its oversubscription option.
Use of Proceeds: To be used for working capital and other general corporate purposes
Issue Price: Par or 100% of face value.
Taxation: Interest Income on Bonds
A. For Individuals
Interest income on long-term bonds, with maturities of five (5) or more years, may be exempt from final withholding tax subject to compliance with certain conditions.
If such long-term bond is pre-terminated before the fifth (5th) year, it shall be subject to a final withholding tax at the rates prescribed to be deducted and withheld from the proceeds based on the length of time that the instrument was held by the taxpayer in accordance with the following schedule:
a. Four (4) years to less than five (5) years – 5%
b. Three (3) years to less than four (4) years – 12%
c. Less than three (3) years – 20%.
B. For Corporations
Interest income derived by domestic and resident foreign corporations from deposit substitutes, offered to the public, is subject to FWT at the rate of twenty percent (20%) pursuant to Sections 27 (D) (1) and 28 (A) (7) (a) of the NIRC of 1997, as amended, payable upon original issuance of the deposit substitutes.
As used herein: “deposit substitutes”, as defined in Section 22 (Y) of the NIRC of 1997, as amended, means an alternative form of obtaining funds from the public other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer.
“Public”, is defined as borrowing from twenty (20) or more individual or corporate lenders at any one time Except for such withholding tax and as otherwise provided, payments of principal and interest will be made free and clear of any deductions of any taxes, duties, or charges imposed by or on behalf of the Republic of the Philippines. If such taxes, duties, or charges are imposed, the same shall be for the account of the Bank; provided, however, that the Issuer shall not be liable for:
a. Any creditable or final withholding tax applicable on interest earned on the D Bonds prescribed under the NIRC, as amended, and its implementing rules and regulations as be in effect from time to time; a corporate or institutional investor who is exempt from or not subject to such withholding tax shall be required to submit a tax exemption certificate and other applicable documents (except if such exemption is by virtue of Section 3 of Revenue Regulations No. 14-2012);
b. Gross receipts tax;
c. Taxes on the overall income of any securities dealer or bondholder, whether or not subject to withholding; and
d. Value-added tax.
Documentary stamp tax for the primary issue of the Bonds shall be for the Bank’s account.
Change in Tax Rates and New Taxes
In the event there is a change in the tax treatment of the Bonds or on the tax rates applicable to a Bondholder because of new, or changes or repeal in, tax laws, or interpretations thereof, as a result of which, a Bondholder previously exempt from tax shall be subject to tax on income earned from the Bonds or there is an increase in the applicable withholding tax rate, or any payments of principal and/or interest under the Bonds shall be subject to deductions or withholdings for or on account of any taxes, duties, assessments, or governmental charges of whatever nature imposed, levied, collected, withheld, or assessed within the Philippines by any authority therein or thereof having power to tax, including but not limited to stamp, issue, registration, documentary, value-added or similar tax, or other taxes, duties, assessments, or government charges, including interest, surcharges, and penalties thereon (the “New Taxes”), then such New Taxes imposed shall be for the account of the Bondholders and the Paying Agent, on behalf of the Bank, as applicable, shall make the necessary withholding or deduction for the account of the Bondholders concerned. All sums payable by the Bank to tax-exempt persons (upon presentation of acceptable proof of tax exemption) shall be paid without deductions for taxes, duties, assessments, or government charges.
Prohibited Holders means persons and entities which are prohibited from purchasing/holding any Bonds and Commercial Papers of the Bank pursuant to the BSP Rules, specifically: (1) the Bank; (2) the Bank’s related parties (except for the Bank’s trust department or its related trust entities) such as: (a) subsidiaries and affiliates of the Bank, and any party (including their subsidiaries, affiliates and special purpose entities) that the Bank exerts direct or indirect control over or that exerts direct or indirect control over the Bank; (b) the Bank’s directors, officers, stockholders, related interests and their close family members, as well as corresponding persons in affiliated companies; and (3) persons and entities that have direct or indirect linkages to the Bank identified as (a) ownership, control or power to vote, of 10% to less than 20% of the outstanding voting stock of the Bank; (b) interlocking directorship or officership, except in cases involving independent directors as defined under existing regulations or directors holding nominal share in the Bank; (c) common stockholders owning at least 10% of the outstanding voting stock of the Bank and 10% to less than 20% of the common outstanding voting stock of the Bank; and (d) permanent proxy or voting trusts in favor of the Bank constituting 10% to less than 20% of the outstanding voting stock of the Bank, or vice versa.
Joint Lead Managers and Joint Bookrunners: First Metro Investment Corporation (“First Metro”)
The Hongkong and Shanghai Banking Corporation Limited (“HSBC”)
Trustee: Development Bank of the Philippines – Trust Banking Group
Selling Agents: First Metro, HSBC and MBTC
Market Maker: To be determined
Registrar and Paying Agent: Philippine Depository & Trust Corporation (“PDTC”)
Issue Date: June 4, 2021
Maturity Date: September 4, 2026 or 5 years and 3 months from the Issue Date
Interest Rate: 3.6000%
Governing Law: Philippine Law
Frequently Asked Questions:
- What is the use of proceeds from the issuance?
The net proceeds of the Bonds will be used by the Issuer for working capital and other general corporate purposes.
- What is the yield on these Bonds?
The yield of the bonds is 3.6000%. The Bonds will be issued at par.
- How was the coupon determined for these Bonds?
The coupon was based on the 3-day average of the 5Y BVAL Reference Rate as of May 5, 2021. We then applied a 35 bps spread to arrive at the coupon of 3.6000% based on our market sounding.
BVAL refers to the Peso Reference Rate provided by Bloomberg based on gathered Peso government securities data for benchmark tenors of 1mo to 30yrs. It replaced PDST in Oct 2018 as the benchmark for loans and securities.
- Are there any key differences between the terms and conditions / features in these Bonds versus the Metrobank bonds issued last year?
The Bonds due 2026 have the same terms and conditions as the 3.00% Bonds Due 2021 issued by Metrobank last June 2020 in all respects except for the issue date, coupon payments, tenor, maturity, and taxation. In addition, the definition of “Prohibited Bondholders” was amended in June 2020 under the Bank’s most recent Programme OC.
The Bonds due 2026 will also be tax-exempt for individuals, subject to compliance to certain conditions imposed under relevant laws and regulations.
- Why is there a change in the definition of prohibited holders in the terms and conditions?
The Bangko Sentral ng Pilipinas (BSP) released BSP Circular 1062 (Series of 2019) and BSP Memo 001-2020 which detail and clarify the definition and scope of prohibited holders for a Bank’s bond issuance. In response to these new regulations, the ‘Prohibited Holders’ definition under the terms and conditions of the Issuer’s Bond and Commercial Paper Programme now reads as follows:
Prohibited Holders means persons and entities which are prohibited from purchasing/holding any Bonds and Commercial Papers of the Bank pursuant to the BSP Rules, specifically: (1) the Bank; (2) the Bank’s related parties (except for the Bank’s trust department or its related trust entities) such as: (a) subsidiaries and affiliates of the Bank, and any party (including their subsidiaries, affiliates and special purpose entities) that the Bank exerts direct or indirect control over or that exerts direct or indirect control over the Bank; (b) the Bank’s directors, officers, stockholders, related interests and their close family members, as well as corresponding persons in affiliated companies; and (3) persons and entities that have direct or indirect linkages to the Bank identified as (a) ownership, control or power to vote, of 10% to less than 20% of the outstanding voting stock of the Bank; (b) interlocking directorship or officership, except in cases involving independent directors as defined under existing regulations or directors holding nominal share in the Bank; (c) common stockholders owning at least 10% of the outstanding voting stock of the Bank and 10% to less than 20% of the common outstanding voting stock of the Bank; and (d) permanent proxy or voting trusts in favor of the Bank constituting 10% to less than 20% of the outstanding voting stock of the Bank, or vice versa.
A new section in end of the Application to Purchase (“ATP”) titled “Eligibility Questions” has been added to ensure that the prospective investor does not violate the above definition of Prohibited Holders.
- When will investors receive interest payments on the Bonds?
Investors will receive interest payments on a quarterly basis. The Bonds bears interest on its principal amount from and including Issue Date at the final coupon rate to be determined, payable quarterly in arrears, commencing on September 4, 2021 as the first Interest Payment Date, and on December, March, June and September of each year until the Maturity Date, or the subsequent Business Day without adjustment to the amount of interest to be paid, if such Interest Payment Date is not a Business Day.
- When and where can an investor purchase the Bonds?
The Bonds will be sold during the public offer period through the selling agents – First Metro, HSBC and MBTC.
- How long is the offer period of the Bonds?
The Offer Period for the Bonds will be from May 6, 2021 until May 24, 2021. The issue date will be on June 4, 2021. The Selling Agents may require earlier settlement date to ensure orders are duly funded come June 4. The Bank also reserves the right to close the Offer Period at an earlier or later date subject to discussion between the Bank and the Joint Lead Managers and Joint Bookrunners.
- How does an investor participate in the public offer period?
Applicants may submit an application to purchase the Bonds during the Offer Period by submitting fully and duly accomplished ATP forms in triplicate together with all the required attachments and the corresponding payments to the Selling Agent from whom such application was obtained. The Issuer reserves the right to adjust the Offer Period as needed.
Given the current limitations of the general community quarantine in place in various parts of the country, electronic submission to the Selling Agents of the ATP form along with the supporting documents is permitted. It is important that the electronic submission of the ATP form contains the legible signature of the investor in the appropriate space. The Selling Agents may require that the original application documents be submitted as soon as practicable given further easing of community quarantine measures.
- Aside from the ATP, what other documents are required to be submitted?
If the Applicant is an individual, the following documents must also be submitted:
a. A clear copy of at least one (1) valid photo-bearing identification document issued by an official authority in accordance with BSP Circular No. 608 (2008) as may be amended from time to time, and documents as may be required by to the Registrar and/or Selling Agent concerned;
b. Two (2) fully executed signature cards in the form attached to the application; and
c. For aliens residing in the Philippines or non-residents engaged in trade or business in the Philippines, consularized proof of tax domicile issued by the relevant tax authority of the Applicant.
If the Applicant is a corporation, partnership, trust, association or institution, the following documents must also be submitted:
a. SEC-certified or Corporate Secretary-certified true copy of the SEC Certificate of Registration, Articles of Incorporation and By-Laws or such other relevant organizational or charter documents;
b. Original or Corporate Secretary-certified true copy of the duly notarized certificate confirming the resolution of the Board of Directors and/or committees or bodies authorizing the purchase of the Bonds and specifying the authorized signatories; and
c. Two (2) fully executed signature cards duly authenticated by the Corporate Secretary, in the form attached to the application.
Corporate applicants who are claiming tax exemption must also submit the following:
a. Certified true copy of a tax exemption certificate, ruling or opinion issued by the Bureau of Internal Revenue no more than one year prior to the date of submission of the same to the Selling Agents or Limited Selling Agents;
b. Original duly notarized undertaking, in the prescribed form, declaring and warranting its tax-exempt status, undertaking to immediately notify the Issuer and the Registrar and Paying Agent of any suspension or revocation of its tax-exempt status and agreeing to indemnify and hold the Issuer and the Registrar and Paying Agent free and harmless against any claims, actions, suits, and liabilities resulting from the non-withholding of the required tax; and
c. Such other documentary requirements as may be required by the Registrar as proof of the Applicant’s tax-exempt status.
- How do I receive my principal and interest?
On the relevant Payment Date, the Registrar shall, upon receipt of the corresponding funds from the Issuer, make available to the Bondholders the amounts due under the Bonds, net of taxes and fees (if any), by way of credits to the bank accounts identified by the Bondholders in the Applications to Purchase.
- Can someone without a TIN invest in the Bonds?
All applicants are required to have a TIN. For joint/multiple applicants in one (1) ATP, at least one (1) of the Eligible Holders subscribing to the Bonds must have a TIN.
- What are the tax implications of investing in the Bonds?
For Individuals
Interest income on long-term bonds, with maturities of five (5) or more years, may be exempt from final withholding tax subject to compliance with certain conditions imposed under relevant laws and regulations.
For Corporations
The Tax Code provides that interest-bearing obligations of Philippine residents are Philippine sourced income subject to Philippine income tax. Interest Income received by domestic and resident foreign corporations shall be subject to the final withholding tax of 20.0%. Interest income received by non-resident aliens not engaged in trade or business in the Philippines shall generally be subject to a final withholding tax of 25.0%. Interest income received by non-resident foreign corporations from the Bonds shall be subject to a 30% final withholding tax.
Any gain realized from the sale, exchange or retirement of bonds will, as a rule, form part of the gross income of the sellers, for purposes of computing the relevant taxable income subject to the regular rates of 20-35% effective 1 January 2018 until 31 December 2022 and 15%-35% effective 1 January 2023 for individuals or 30% for domestic and foreign corporations, as the case may be. If the Bonds are sold by a seller who is an individual and who is not a dealer in securities and who has held the bonds for a period of more than 12 months prior to the sale, only 50% of any capital gain will be recognized and included in the sellers’ gross taxable income.
The transfer of Bonds as part of the estate of a deceased individual to his heirs, whether or not such individual was a resident of the Philippines at the time of his death, will be subject to an estate tax, at a uniform rate of 6 percent, regardless of whether the decedent is a resident or non-resident of the Philippines. A holder of such Bonds will be subject to donor's tax, at a uniform rate of 6% based on the value of the total gift in excess of P250,000 made during a calendar year, regardless of the relation of the donor to the donee.
- How can an individual sell the Bonds in the Secondary Market? What are the tax implications for the sale?
An individual can sell the Bonds through their broker, for further trading via the PDEx.
If the bonds are not held to maturity by the investor, it shall be subject to a final withholding tax at the rates prescribed to be deducted and withheld from the proceeds based on the length of time that the instrument was held by the taxpayer in accordance with the following schedule:
a. More than five (5) years – Tax-exempt
b. Four (4) years to less than five (5) years – 5%
c. Three (3) years to less than four (4) years – 12%
d. Less than three (3) years – 20%.
- Will schools and other tax-exempt institutions who are interested to purchase the Bonds whose tax exemption certificate/ruling/opinion issued by the BIR is dated, still be considered as tax-exempt?
A current certified true copy of the original tax exemption certificate, ruling or opinion issued by the BIR dated no more than one year prior to the date of the Application to Purchase can be accepted.
