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64 BANCO DE OROBills payable bears interest rates of 3.9% to 13.70% per annum in 2005 and 1.89% to 13.70% per annum in 2004.On October 16, 2003, the Bank listed 6.5% US$150,000 senior notes in the Singapore Stock Exchange which will mature on October 16,2008. The net proceeds from the issuance of the senior notes amounted to US$146,621 or about P8,890,000. Interest expense incurredby the Bank on these senior notes amounted to P538,975 in 2005 and P546,841 in 2004 (shown under Interest Expense on Bills Payableand Other Borrowings in the statements of income).As required under PAS 32, Financial Instruments: Disclosures and Presentation, the Bank recognized as financial liability 25,000,000 sharesof redeemable, cumulative and non-participating preferred shares with a par value of P10 per share issued to SMPHI on October 18,2004. The preferred shares were issued at US$2 per share or an aggregate subscription price of US$50,000. The preferred shares entitleSMPHI to cumulative dividends, payable in US dollars semi-annually in arrears, equal to 6.5% of the issue price per annum. The Bank isalso required to redeem the preferred shares from SMPHI at the original issue price five years from the date of issue. As required by BSP,the Bank setup a sinking fund on October 17, 2005 for the redemption of the preferred shares. The balance of the sinking fund as ofDecember 31, 2005 amounts to P570,008 and is invested in debt securities, shown as part of Held-to-Maturity Investments in thestatements of condition (see Note 9). Dividends in arrears (recognized as interest expense) as of December 31, 2005 and 2004 amountedto P122,218 and P37,589 computed using the exchange rate at year end and are presented as part of Bills Payable account in thestatements of condition.On June 27, 2002, the Bank entered into a US$20,000 convertible loan agreement with IFC. IFC has the option to convert a portion ofthe loan into common shares of the Bank commencing two years after the date of the agreement for P16.70 per share. Total proceedsof the loan amounted to P1,111,720. In compliance with PAS 32, Financial Instruments: Disclosure and Presentation and PAS 39, FinancialInstruments: Recognition and Measurement, the Bank separated the equity component of the conversion option and unsecured loanwith IFC. The balance of common stock option outstanding as of December 31, 2005 and 2004 amounted to P13,634 and P27,268,respectively. The loan bears interest at a rate of 4.03% per annum and will mature in 2008. Total interest paid by the Bank amountedto P31,710 in 2005 and P20,490 in 2004, of which P30,896 and P19,964, respectively, are charged to income and shown under InterestExpense on Bills Payable and Other Borrowings in the statements of income while P814 and P526, respectively, are recognized asdividends which were directly charged to capital funds.Upon approval by the Bank’s Board of Directors on February 11, 2005, the Bank converted US$10,000 convertible loan from IFC, qualifiedas Tier 2 capital, and issued 31,403,592 common shares of the Bank based on the conversion price of P16.70 per share and exchange rateof P52.44 to a dollar. The BSP subsequently approved the conversion on May 3, 2005.17. OTHER LIABILITIESOther liabilities consist of the following:ConsolidatedParent2005 2004 2005 2004Accounts payable P 1,857,805 P 808,144 P 1,673,718 P 744,590Sundry credits 1,756,415 1,846,057 1,756,415 1,846,057Due to UOBP (see Note 23) 600,000 - 600,000 -Outstanding acceptances payable 525,093 557,961 525,093 557,961Manager’s checks 469,268 365,437 469,269 365,438Accrued other taxes and licenses 254,488 244,159 250,639 241,950Capitalized interest and other charges 179,022 126,817 119,012 126,817Due to BSP 110,553 87,984 110,553 87,984Due to insurance companies/Treasurer of the Philippines 38,747 45,993 68,115 17,697Others 1,069,299 1,012,369 749,559 902,314P 6,860,690 P 5,094,921 P 6,322,373 P 4,890,808Sundry credits pertain to bills purchase line availments which are settled on the third day from the transaction date.Capitalized interests and other charges represent interest on restructured receivables from customers. These are recognized as incomeonly upon collection.18. CAPITAL FUNDS18.1 Issuance of Global Depositary Receipts by PrimebridgeOn January 25, 2006 and February 14, 2006, Primebridge Holdings, Inc. (Primebridge), a stockholder owning 22.08% of the Bank’s totaloutstanding shares as of December 31, 2005, offered and sold 9,056,000 global depositary receipts (GDRs) each representing 20 shares ofthe Bank’s common stock with a par value of P10 per share. The GDRs constitute an offering in the United States only to qualifiedinstitutional buyers in reliance on Rule 144A under the U.S. Securities Act of 1993 (the “Securities Act”) and an offering outside theUnited States in reliance on Regulation S under the Securities Act. The offered price for each GDR is US$12.70.
2005 ANNUAL REPORT65As part of the offering, Primebridge shall, while remaining as the registered holder of the Bank’s shares underlying the GDRs, transferall rights and interests in the Bank’s shares underlying the GDRs to the depository and the holders of the GDRs are entitled to receivedividends paid on the shares. However, GDR holders will have no voting rights or other direct rights of a shareholder with respect to theBank’s shares under GDRs.18.2 Surplus FreeOn April 30, 2005, the BOD approved the declaration of cash dividend amounting to P0.65 per share or a total of P610,735 payable tostockholders on record as of July 11, 2005. The cash dividend was approved by the BSP on June 17, 2005 and was paid by the Bank onJuly 29, 2005.On June 21, 2004, the BOD approved the declaration of cash dividend amounting to P0.50 per share or a total of P454,095, payable tocommon stockholders on record as of September 15, 2004. The cash dividend was approved by the BSP on August 17, 2004 and was paidby the Bank on September 27, 2004.Dividends also include the portion of interest expense paid by the Bank to IFC attributable to the equity component (see Note 16). Totalamount of dividends allocated to the equity component amounted to P814 and P526, respectively.18.3 Qualifying CapitalUnder current banking regulations, the combined capital accounts of each bank should not be less than an amount equal to ten percentof its risk assets. The qualifying capital of the Bank for purposes of determining the capital-to-risk assets ratio is total capital fundsexcluding:a. unbooked valuation reserves and other capital adjustments as may be required by the BSP;b. total outstanding unsecured credit accommodations to directors, officers, stockholders and related interests (DOSRI);c. deferred tax asset or liability;d. goodwill;e. sinking fund for redemption of redeemable preferred shares; and,f. other regulatory deductions.Risk assets consist of total assets after exclusion of cash on hand, due from BSP, loans covered by hold-out on or assignment of deposits,loans or acceptances under letters of credit to the extent covered by margin deposits, and other non-risk items as determined by theMonetary Board of the BSP.The amount of surplus funds available for dividend declaration is determined also on the basis of regulatory net worth after consideringcertain adjustments.As of the dates of the statements of condition, the Bank has complied with the above requirement on the ratio of combined capitalaccounts against the risk assets.18.4 Minimum Capital RequirementUnder an existing BSP circular, expanded commercial banks are required to comply with the minimum capital requirement of P4,950,000.As of the dates of the statements of condition, the Bank has complied with the above capitalization requirement.19. MISCELLANEOUS INCOME AND OTHER OPERATING EXPENSESMiscellaneous income is composed of the following:ConsolidatedParent2005 2004 2005 2004Income from assets acquired P 41,778 P 38,522 P 41,778 P 38,522Miscellaneous - net 6,975 63 89,938 32,744P 48,753 P 38,585 P 131,716 P 71,266
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Page 32 and 33: 30 BANCO DE OROThe following reconc
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