However, the offer is part of a trend that began in 2005 and which has seen several Manila-listed companies launch what is effectively a ôre-IPOö to boost their free-float and increase the international ownership of their stock.
The sale will comprise 6.21 billion shares, including a greenshoe of 810 million shares, and will increase FilinvestÆs freefloat to 30.8% from the present 13.3%. The shares will be offered at a discount of up to 8% to the volume-weighted average price in the 10 trading days before the order books close on January 19, a source familiar with the deal said.
Based on yesterdayÆs closing price of Ps1.70, the UBS-led offer could raise up to Ps10.56 billion ($216 million) if priced at a zero per cent discount. The final price will be determined on January 20.
The base deal size of 5.4 billion shares will comprise 3.7 billion new shares and 1.7 billion existing shares which will be sold by the companyÆs second largest shareholder, Filinvest Alabang, which currently holds a 26.6% stake. According to the original filing, the Government Investment Corp of Singapore was also planning to sell 1.93 billion shares as part of this deal, but when the offer was launched yesterday it had decided to hang on to the shares.
The company offered no explanation for GIC having changed its mind, but the move is likely to be regarded as positive by potential investors as it suggests at the existing shareholder expects the share price to continue to head higher.
GIC owns 6.7% of Filinvest, which is majority controlled by Filinvest Development Corp with 53.4%.
According to the filing, 95% of the shares will be sold to international investors û including US-based accounts - while the remaining 5% will be offered to local investors through a separate domestic offering arranged by ATR-Kim Eng Capital Partners.
The reason for companies like Filinvest to want to increase the liquidity in their stock is that they hope it will help improve the valuation. Prior to the sale, these companies have typically been tightly held by families, which have left little room for large international funds to make investments of a size they consider sufficient.
Even though FilinvestÆs share price has risen 77% in the past 12 months and sharply outperformed the 37% gain in the Philippine Stock Exchange Index, it has lagged the performance of rival property companies Robinsons Land and Megaworld Corp. which are up 158% and 86% respectively.
At 22 times its projected 2007 earnings and 1.1 times its book value, FilinvestÆs stock is also considered cheap versus other regional property companies, according to some property analysts. UBSÆ own analyst, who has a buy on the stock, estimates that the company trades at a 30% discount to its net asset value.
Robinsons Land and Megaworld both conducted similar share sales to boost their free-float last year. However, their richer valuation and better performance also stem from the fact that these two companies focus on the mid- to upper-end of the residential real estate market, which has traditionally performed better than the low-income segment that Filinvest specialises in.
This is changing however. According to a source close to the company, it is the ôsocialised and affordableö low-end of the market that will see most of the construction of new housing going forward and much of the remittances from Filipinos working abroad also end up being invested in this type of real estate.
And Filinvest, which is a dominant player in this otherwise very fragmented part of the market, is in a good position to benefit. The company is developing residential properties throughout the Philippines.
Most of FilinvestÆs share price gains have come in the past three months when the company has undergone a major restructuring that has included the injection of assets from its parent company. These acquisitions (of three separate assets) have given the company exposure to shopping malls and the business process outsourcing office market.
The deal comes at a time when investor sentiment for the Philippine stock market is at a high, thanks to a strong macroeconomic backdrop. The local stock market was one of the best performers in Asia ex-Japan last year and set a new six-year high on January 3.
According to bankers this is expected to spark more equity issuance by Philippine companies this year. For UBS this is the fifth ôre-IPOö it is arranging for a Philippine company since the beginning of last year, which makes it a key driver of this trend together with Macquarie Securities.
UBS has also completed similar issues for Megaworld, Robinsons Land, Universal Robina and Metro Bank, while Macquarie has helped boost the free float of Semirara Mining, Banco de Oro, Universal Bank and China Banking Corp.
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