Globe Telecom’s $100 million Philippine depositary receipt (PDR) issue was completed via Morgan Stanley Dean Witter yesterday, but fell short of initial hopes for a deal from that country that could blaze a trail for others.
Nonetheless Globe succeeded in offering 6.4 million new PDRs in a horrible macro environment – a considerable achievement. The Philippines has been among Asia’s worst performers this year thanks to volatile politics, charges of heightened cronyism and being sidelined by index providers. Globe achieved its goals of allowing foreign fund managers access to owning Globe stock and to raising money for its capital expenditure requirements. A MSDW official says investors were impressed by the company’s management, which scored well on roadshows.
But the lacklustre pricing may dent its ambitions to one day list on Nasdaq. The PDRs priced at P725 each, a 8.2% discount to the common stock price of P790 at Tuesday’s close. This is a disappointment, given hopes when the deal was announced in July that it could price better than the first PDR deal, a 1999 offering from media company ABS-CBN, which priced at par. Indeed, analysts believed if any Philippine name could make a deal price at a premium, it would be Globe.
There are two ways to look at this. MSDW officials say the pricing was kept low to leave something on the table for investors. Syndicate members say international portfolio managers remain jaded toward investing in the Philippines. Analysts had hoped a premium would pave the way for Globe to issue another 8 million PDRs later this year, but that hope is now dimming.
“The Philippine stock market is at a two-year low, the peso is at a lifetime low, the country’s not on investors’ radar screens because it’s only 2% of the [Morgan Stanley Capital International all-Asia ex-Japan free index]. The company must either be really fantastic or really cheap, and the Globe deal was fairly valued,” says one syndicate member.
Of the 6.4 million PDRs, 1.0 million were sold to domestic retail investors. About 25-30% of the remaining 5.4 million PDRs were bought by Globe’s existing shareholders: Ayala Group, Singapore Telecom and Deutsche Telecom. The balance went to international portfolio managers, mainly in the US structured as a 144a offering or to global accounts’ desks in Asia.
There is a concurrent deal allowing current shareholders to exchange common shares for PDRs, which closes on 11 October.
The PDR structure has been necessitated by local laws that prevent foreign investors from owning more than 40% of the company. At the moment, Singapore Telecom entirely fills the quota through its 39.07% stake. The company's other major shareholder is the Ayala group holding 44.21%. The remaining 16.72% is in free float.
The company's takeover of rival cellular operator Islacom, however, brought Deutsche Telekom into the equation and a consequent need to restructure the capital base so that both of foreign operators can maintain large stakes in the company without falling foul of current regulations.
Chase JF, Credit Lyonnais Securities Asia and ING Barings comprised the deal’s syndicate.
