AGI was restructured earlier this year to become the holding company for a group of businesses that are controlled by the family of Philippine developer Andrew Tan. It offers exposure to the food and beverage sector through the production of the countryÆs best-selling brandy Emperador among other things. It also operates the McDonaldÆs franchise in the Philippines and has a 46% controlling stake in leading real estate developer Megaworld.
The deal itself confirms the budding interest in the company, having attracted about $1.7 billion worth of demand from more than 100 international investors. And this for a stock that sees just over $400,000 worth of trading on an average day.
Given the massive increase in the free-float from about 11% to 43%, or from $130 million to $600 million in absolute terms, the offering met all the criteria for the so called ôre-IPOsö that have become a common feature in the Philippine market over the past couple of years. A re-IPO is meant to ensure that a company's shares become more liquid and therefore at least eligible for inclusion into the investment portfolios of large foreign funds.
UBS, which together with Macquarie Securities, has been one of the most active investment banks when it comes to arranging these types of deals, acted as global coordinator and sole bookrunner for AGIÆs offering. CLSA and Macquarie were co-lead managers, while BDO Capital & Investment will be the lead underwriter for the domestic portion of the deal, which will be completed over the next week.
Like most of the re-IPOs before it, AGIÆs offering was fully marketed with a two-week roadshow and to further underline how insignificant the existing free-float had become it was also offered with a fixed price range rather than at a discount versus the existing market price. The fact that the stock barely traded during the roadshow confirms that this was a correct call by the bookrunners.
The total deal comprises 3.13 million shares, or 30.5% of the company, of which 80% were sold to international investors. The price was fixed close to the top of the Ps5.20 to Ps 5.80 marketing range at Ps5.75 for a total base deal size of Ps18.0 billion ($387 million). Including the 15% greenshoe, the total proceeds could reach Ps20.7 billion ($445 million).
At that size, the AGI deal will be the second largest equity offering by a Filipino company after SM InvestmentÆs Ps28.75 billion IPO in March 2005 ($528 million at then exchange rates). It is already the largest follow-on offering from the Philippines.
Not all of the proceeds will go to the company, however, as half the deal (including the greenshoe) is made up of existing shares. The base deal consists of 1.8 billion new shares and 1.33 billion existing shares, while the greenshoe is made up of 469.6 million secondary shares.
The final price represents a 10.2% discount to the latest closing price on June 1, although one source says the thin trading activity makes this discount relatively meaningless as the market price isnÆt necessarily a true reflection of the company value.
More important, he says, is the fact that the re-IPO price was set at a 2008 price-to-earnings multiple of 16.4 times, which marks a slight discount to other traditional Filipino holding companies like Ayala, SM Investments or JG Summit. However, none of these companies can be considered direct comparables as they are all active within different businesses.
Still, all of AGIÆs three businesses ôare growing very fast and a PE of 16 times for this kind of growth is very attractive,ö the source says.
The final price also equates to a 12% discount to AGIÆs net asset value.
The deal was anchored down by six cornerstone investors, who committed to buy a combined $135 million worth of shares at the final price before the public marketing began. The cornerstones werenÆt disclosed and wonÆt be subject to any lockup, but according to sources they are institutional investors who were either existing shareholders of Megaworld or otherwise well-known as investors into other Philippine equity offerings. The six investors are said to be based in Hong Kong, Singapore, London and San Francisco.
Looking at the remaining institutional portion of the deal, it accounted for about $233 million post-shoe and was around 7.4 times covered. According to sources, the demand was fairly evenly split with 30% coming from Asia, 30% from Europe and 37% from the US. The remaining 3% was sourced out of Australia. Long-only investors accounted for 52% of the order value, with hedge funds making up the remaining 48%.
Overall, AGI focuses on developing products and services that cater to a growing Philippine middle class, which is among the key beneficiaries of the countryÆs strong economic growth. Last year its revenues grew by 36% to a proforma (assuming the current business formation was in place) Ps19.87 billion ($411.6 million), while net profit rose 85% to Ps1.73 billion ($35.8 million). The real estate segment was the single largest contributor to the top line with 41%.
The company plans to spend most of the net proceeds to expand the business of its 100%- owned Emperador Distillers subsidiary, which will include the construction of a new production line for making flavoured alcoholic beverages with low-alcohol content and a new alcohol distillery to increase the production of brandy for both local and export distribution. Work on the new distillery will begin in the fourth quarter and is expected to take 18 months.
During the same period it will expand and upgrade its glass bottle production facility. About Ps1 billion will also go towards the repayment of a loan granted by Banco De Oro which accrues interest at 9% per year.
Among its other expansion strategies, the company also plans to open an average of 50 new McDonaldÆs restaurants per year in 2007-2011 adding to the 259 outlets it had at the end of March. The company holds a 49% stake in Golden Arches Development Corp. which oversees the operation of all the fast-food chainÆs restaurants in the Philippines.
The new shares are due to start trading on the Philippine stock exchange on June 18 after the 20% domestic tranche has also been completed.