Byline: LEE C. CHIPONGIAN

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) has approved Land Bank of the Philippines' $ 100-million hybrid Tier1 issuance abroad.

Land Bank is planning to float the bonds overseas, including in Singapore and Hong Kong to cement its international

Based on its application with the central bank, the issue's lowest purchase denominator is $ 100,000 per institutional investor.

Proceeds from hybrid Tier1 will be used to beef up bank capital since the bank have no maturing obligations this year.

The hybrid Tier 1 capital helps banks absorb losses since the instruments have equity-like features that have made them acceptable as Tier 1 capital. They may be in the form of unsecured subordinated debt or preferred shares with step-up feature, but hybrid capital instruments are also "perpetual" and are redeemable by the issuer only, subject to BSP approval.

Land Bank is not the first GFI to use the hybrid Tier 1 to raise cash. Last year the Development Bank of the Philippines also offered $ 130 million via hybrid capital.

While Land Bank and DBP are both GFIs or functioning as state banks and official government depository banks - they sometimes compete against each other.

The Monetary Board, the central bank's policy making arm allows banks to issue higher hybrid Tier 1 capital, which is above the limit of 15 percent of the total Tier 1 and use the excess capital as part of the supplementary debt.

The BSP said the excess hybrid capital will be booked as Tier 2. But if in the future, the bank grows, it can put back the hybrid instrument to Tier 1 so it could raise more Tier 2 capital.

To improve capital, Land Bank will also issue preferred shares worth P5 billion and up to P2.5 billion worth of Tier 2 capital this year.

In 2006, Land Bank issued $ 150 million worth of subordinated notes, which increased their capital adequacy ratio to 19 percent from 14 percent. It was 10 times oversubscribed.

Land Bank was established on August 8, 1963 as the financial arm of the government's agrarian reform program.