By Eileen A. Mencias

Banco de Oro Unibank Inc., the country’s largest bank, will issue P2.5 billion worth of unsecured subordinated notes to strengthen its capital and fund its expansion program.

Banco de Oro, controlled by retail tycoon Henry Sy, said it had tapped Hong Kong and Shanghai Banking Corp. as arranger for the tier 2 issue to be offered to investors next week.

The bank said the notes were priced at 7.5 percent per annum, with a 10-year maturity and calleable on the fifth year.

BDO said it was raising as much as P13 billion in additional capital from the issuance of tier 2 notes and a rights offer in anticipation of business growth and network and investment expansion opportunities during the year.

BDO planned to issue as much as P5 billion from the tier 2 notes offer and another P7 billion to P8 billion from a rights offering.

BDO and partner Assicurazioni Generali had vied for Philippine American General Life Insurance Co. before beleaguered American Insurance Group put off the sale with the restructuring of AIG and the infusion of additional funds from the US government.

BDO issued tier 2 notes in September to strengthen its capital, which was weakened by its exposure to Lehman Brothers.

BDO earlier this week said it registered a net income of P2.2 billion in 2008, sharply down from P6.5 billion in 2007 due to challenging conditions.

BDO said its underlying business continued to be strong with the solid growth in loans, deposits, net interest and service-based fee incomes.

BDO retained its top ranking in terms of total resources, loans and deposits as of end-2008. Its capital, however, was only third at P57.8 billion. The bank had a capital adequacy ratio of 14 percent at the end of December, well above the regulatory requirement of 10 percent.