JG Summit, the Philippine conglomerate controlled by the Gokongwei family, has raised Ps8.8 billion ($200 million) from a share placement that it will use partly to fund its purchase of a stake in power producer Manila Electric Co (Meralco).
The deal was completed after the market closed on Monday, ahead of JG Summit’s inclusion in the MSCI Philippines index from the close of trading on Tuesday. The entry into the index was announced on November 7 and, according to a source, is estimated to result in $60 million to $85 million of additional buying of the company’s shares by passive index funds.
JG Summit’s share price jumped 12.1% in the first three days after the MSCI announcement to match the record closing high of Ps49 that it hit in April this year. It has given up all those gains since then, however, as the Philippines have been dealing with the fall-out from Typhoon Haiyan, which is known to have killed at least 4,000 people.
The share price fell 4.9% on Monday as there may have been some leaks in the market that a placement was coming. Sources said the bookrunners built a shadow order book in the run up to the transaction and the base deal was largely covered at launch.
JG Summit offered 220 million shares, which accounted for 3.2% of the existing share capital and consisted of approximately 98.1 million treasury shares and 121.9 million common shares that were sold through a top-up placement.
They were marketed at a price between Ps40 and Ps41 apiece, which translated into a discount of 1.7% to 4.1% versus Monday’s close of Ps41.70.
According to a source, there was pretty good demand, with orders from more than 40 investors when the books closed after about three-and-a-half hours, but the price was fixed at the bottom for the maximum 4.1% discount. Even in light of the drop earlier in the day that is still a fairly tight discount for the Philippines, though.
The bookrunners clearly felt that was the case as the term sheet listed the discount range versus Monday’s volume-weighted average price rather than versus the close. Since the VWAP, at Ps42.50, was higher than the closing price, the implied discount listed on the term sheet was 3.5% to 5.9%.
Most investors are unlikely to have been fooled by that though and it was no real surprise that the price was fixed at the bottom of the range. After all, the deal accounted for more than 60 days of trading based on the average daily volume in the past three months, or 35 days based on the more active trading in the past month.
By comparison, the most recent overnight placement of size in a Philippine-listed company in early October, which was actually a sell-down by JG Summit in its food and beverage subsidiary Universal Robina, raised $280 million and was priced at a 6.5% discount. A $173 million placement of treasury shares in Universal Robina in July came at a 4.8% discount.
JG Summit was also unable to exercise the upsize option of up to 110 million common shares, which could have increased the total deal size to as much as $300 million.
The deal attracted a mix of long-only funds, passive index funds and hedge funds, the source said. The index funds will have to buy JG Summit before it goes into the MSCI index in order to keep their exposure intact. The MSCI announcement did not include any information about the weighting, but analysts estimate the conglomerate will account for between 5.5% and 6% of the index.
JG Summit is the only stock to go into the MSCI Philippine index following the latest semi-annual index review. No stocks will be removed.
The Philippine conglomerate said on October 1 that it has agreed to buy the San Miguel Group’s 27.1% stake in Meralco for approximately Ps72 billion ($1.6 billion). This is the Gokongwei family’s first move into the power sector and, while the deal has yet to be completed, it seems to have received the thumbs up from investors.
Confirmation of the acquisition helped to propel JG Summit’s share price from a low of Ps35 in mid-September to the November 12 close at Ps49 – a gain of 40%.
Aside from getting a sizeable stake in a high dividend-paying company that supplies electricity to a quarter of the Philippine population, the acquisition will give JG Summit a foothold in the country’s power industry, which is in the process of ramping up capacity to meet the needs of a strongly growing economy.
The deal will also cement the company’s relationship with First Pacific. The Hong Kong-listed investment company owns just under 50% of Meralco following a battle for control of the Philippine utility with the San Miguel group in 2009. After losing out to JG Summit, the San Miguel Group has been trying to get out of its holdings in Meralco and after the sale of this 27% stake, the group will own no more shares in the company.
When announcing the deal, JG Summit said that it intends to fund the acquisition through a combination of debt and equity, and president Lance Gokongwei later told reporters in Manila that about two-thirds of the financing will come from debt.
The company has already sold $280 million worth of shares in Universal Robina in early October and, together with the $200 million raised from this latest placement, it now has enough fresh cash to cover the equity portion.
Aside from food and beverage, JG Summit is also involved in hotel and property development, airlines, telecommunications, banking and petrochemicals. In the first nine months this year, the company posted a 9.4% increase in revenues to Ps110.9 billion and a 17.4% improvement in Ebitda to Ps25.9 billion.
According to local media reports, JG Summit and First Pacific’s Philippine infrastructure unit (Metro Pacific) plan to team up to bid for a $400 million airport project in Cebu province.
The placement was arranged by CLSA and UBS.
