San Miguel Corp last night sold a 5.7% stake in Manila Electric Co (Meralco) through a block trade, raising Ps17.37 billion ($400 million).
The Philippine conglomerate has earlier said that it was looking at alternatives for selling its entire stake in the power producer and it was widely expected that part of that sale would happen through the capital markets. Hence the deal didn’t come as a surprise.
Before this transaction, San Miguel owned about 21.5% of Meralco directly, while two of its subsidiaries — SMC Global Power Holdings and San Miguel Pure Foods — own another 11.3%.
The block trade was launched at a size of $300 million plus a $75 million upsize option. But thanks to good demand in general and the emergence of a corporate investor that came in for “a decent size”, the bookrunners were able to upsize it even further to $400 million.
This meant San Miguel sold approximately 64.3 million shares. They were offered at a price between Ps270 and Ps280 each, which translated into a discount of 7.4% to 10.7% versus yesterday’s closing price of Ps302.40.
The share price has come off from a 2013 high of Ps395 on May 23, partly in anticipation of San Miguel’s sell-down, and on Tuesday and Wednesday this week it fell a combined 8.1% before rebounding 3.1% yesterday. In light of that, one source said the discount was pretty fair.
With a free-float of less than 15%, the stock is also pretty illiquid and based on the average daily trading volume in the past three months, yesterday’s transaction accounted for more than 130 days of trading.
Having decided to upsize the deal by 33%, the price was fixed at the bottom of the range for the maximum 10.7% discount.
According to the source, the base deal was about two-thirds covered before launch and thanks to the corporate investor it ended up being well covered even at the enlarged size. The corporate investor wasn’t disclosed, but Manny Pangilinan, the chairman of Metro Pacific Investments, has earlier said that MPIC may be interested in buying some of San Miguel’s shares in Meralco, but not so many that it would be forced to make a general offer to minority shareholders as well.
MPIC is the single largest shareholder in Meralco with a 48.3% holding through its wholly owned Beacon Electric unit. The group, including its Hong Kong-listed parent First Pacific, was locked in battle with San Miguel for control of Meralco about four years ago, but after MPIC was able to block an attempt by San Miguel president Ramon Ang and his allies to take absolute control of the company in 2009, it is MPIC that has emerged as the controlling owner.
Perhaps that explains San Miguel’s desire to offload its remaining holdings. To be fair though, the beer and packaging conglomerate is in the process of selling a number of non-core assets in order to put more money into new businesses such as oil and gas.
There was no actual indication that MPIC did participate in last night’s block trade, however.
Aside from the corporate investor, about 80% of the demand came from long-only investors and the rest from hedge funds and private wealth-type accounts, the source said. International investors accounted for about two-thirds of the total order amount and the deal attracted between 60 and 70 investors.
San Miguel is expected to continue to reduce its holdings after this initial transaction, and bankers say it is trying to find a strategic buyer for at least part of its stake. However, it may return to the capital markets as well. San Miguel’s remaining shares are locked up for three months, but there is no lock-up on the shares held by SMC Global Power and San Miguel Foods.
Meralco is the largest power distributor in the Philippines and serves about a quarter of the population, according to its website. Despite the recent declines, the stock is still up 16% this year – slightly above the 14% gain in the Philippine benchmark index. Aside from Japan, the Philippines is the best performing equity market in Asia year-to-date.
The block trade was arranged by Deutsche Bank and Standard Chartered.
