Semirara Mining has cashed in on relaxations in the Philippines mining sector, raising its equity offer by 11.29 million shares to raise $68 million. The sale, which totals 105 million shares, is the first internationally placed equity offer of the year on the Philippines stock exchange.
The sale was initially planned as a solely international placement of 78.57 million shares, but, according to bankers on the deal, the stock exchange encouraged a placement to local retail investors. This came in the form of a secondary offer of 15.18 million shares from Semirara's parent, DMCI Holdings. After marketing the deal at P22-44 it was eventually priced at P36 and with an order book nine times over-subscribed the deal-size was again increased, with DMCI selling a further chunk of its original 94% stake.
International investors pay such scant regard to Philippines stocks these days that overseas offers are rare indeed. In 2004 there was just one, the $50 million Macquarie-led sale of Banco de Oro shares in November. As one banker joked, Macquarie's mandate on this latest Semirara transaction was a shoe-in given its 100% market share last year.
Only a handful of blue-chip stocks - PLDT and Globe Telecom, primarily - are significantly held by international investors, but a few factors conspired to draw foreign interest to Semirara. First and foremost, the local mining and exploration sector has only recently been opened to overseas investors. Added to this, Semirara is fantastically profitable thanks to its domination of the local market - it contributes 92% to the country's total output.
The result is that Semirara has the luxury of competing with rivals whose coal is shipped into the country, because the Philippines consumes twice as much coal as it produces, and there are, in effect, no other domestic producers. Major buyers such as Napocor and Philippine National Oil Company pay about P2,800 a metric ton, compared to Semirara's production cost of about P800 a ton.
International investors also like the management's track record of increased production over the past few years, gearing up from 1.6 million tons in 2003 to 2.6 million in 2004. The proceeds from the sale are part of a planned increase in capital expenditure, up to P2 billion this year from P784 million in 2004. That investment is expected to help production rise to 3.5 million tons this year.
The company trades at 2.5 times 2005 earnings and 5.8 times 2006 earnings. Regional comparable Yanzhou Coal trades at 9.2 times 2005 earnings and 8.3 times 2006 earnings.
Demand for the international offer was 60% from Asia, 30% the US and 10% Europe.
