The Philippines' largest independent power producer, First Gen Corp has raised a below-target $162 million from its IPO after volatile global stock markets conspired to boost the uncertainty surrounding Filipino assets and forced bookrunners CLSA and UBS to lower the offer price and sell only the minimum amount of shares.
At that size and price, the book was about 1.6 times subscribed by international investors, but as the demand was not sufficient to cover both the 15% greenshoe and an additional sale of secondary shares by three existing shareholders, a decision was also made to scrap the secondary portion of the sale.
As a result, the Lopez family-controlled company sold 180.9 million new shares at Ps47 each, compared with an initial offer to sell up to 219.9 million primary shares and 125 million secondary shares. Of the total, 20% of the shares were set aside for domestic investors in a offer arranged by ATR-Kim Eng and BDO Capital, although the international subscription level refers to the entire book.
The price was cut from an original range of Ps51 to Ps62 pesos and fixed at Ps47 last Tuesday with two days left of the roadshow to reflect the market sentiment. The latter had taken a turn for the worse after a poor earnings release by General Electric and a below-expected profit from Citigroup triggered a 213-point drop on Wall Street on the preceding Friday - the biggest one-day point-drop since March 2003.
"At that stage the risk premium shot up and people started thinking 'the Philippines is quite interesting, but do I really need to own a Filipino company when Wall Street is falling 200 points?'" said one specialist.
Many investors were also likely to have been put off by the fact that the two companies, which came to the IPO market last year - Manila Water and SM Investments Corp - are both trading below their issue price. There have also been concerns that the market's strong run over the past couple of months may have run its course and be about to fizzle out.
That in mind, it would have been understandable had the company decided to postpone the deal and come back another time, but instead it decided to listen to investors who in light of the new environment wanted more value left on the table.
The completion of the sale, albeit at a smaller size than initially anticipated, will allow First Gen to pursue its acquisition-heavy growth strategy when opportunities arise, while a delayed offer may have hampered its ability to go after some of its targeted assets, one observer noted.
At Ps47 pesos, the company is valued at about 8.5-8.6 times projected 2006 earnings, which compares with an average for 10.4 times for its Southeast Asian comparables, according to syndicate research. At the original price range, the forward P/E multiple ranged from 9 to 11 times.
This year's earnings will likely match those in 2005, First Gen president Federico Lopez has said, without elaborating. The company posted a net profit of $67 million on revenues of $603 million in the nine months to September 2005, compared with a net profit of $89 million and revenues $662 million for the full year 2004.
The decision to distribute the entire greenshoe of 27.1 million additional shares meant that about $186 million worth of stock has been allocated, which observes said was not bad for a Filipino offering given that the daily trading volume on the local stock exchange averages no more than $20 million to $25 million. The order book was said to have included just under 30 investors, of whom slightly more than 65% were long-only funds.
The company, which has a current installed capacity of 1,727 MW, has said it wants to participate both in the sale of National Power Corp assets through the government's privatization programme and to bid for privately owned generation assets, which are expected to be sold this year. At the same time, it was also marketing itself as a mature annuity business with a stable cash flow that will provide a dividend yield of about 3.5%, given a policy to distribute 30% of its annual profits.
First Gen will have a free float of about 23% following the sale, or 26% if the greenshoe is exercised in full.
Having not been able to sell any secondary shares, First Philippine Holdings Corp. will hold 68.1% in the company, while AIDEC FG Power Corp will own 5.96% and Sumitomo will have a 2.93% stake. All three investors will be subject to a six-month lockup.
As of Tuesday's close Manila Water was quoted at Ps6.30, compared with an IPO price of Ps6.50. SMIC yesterday closed at Ps240, 4% below its Ps250 IPO price. Both companies came to market in March last year.
