Century Properties Group completed its inaugural share sale on Friday after going public through a backdoor listing last year. The deal gave international investors a chance to buy into the small-cap Philippine developer for the first time, though demand wasn’t strong enough to cover the entire offering and in the end the parent company chose to withdraw the secondary portion of the deal.
The remaining two-thirds that were made up of new shares issued by the company were priced at the bottom of the range, resulting in a total deal size of Ps2.33 billion ($54.5 million). Including the secondary shares that were supposed to be sold by Century Properties Inc, the offering was initially aiming to raise between $82 million and $110 million.
The removal of the secondary portion didn’t affect the size of the fundraising by the company — it was seeking fresh capital to fund its development projects and to add to its landbank — but it does mean that the increase in the free-float will be smaller than intended. Initially, the plan was to sell 2 billion shares, which would have increased the free-float from 3% to just over 29%, but now, with just 1.33 billion shares sold, the free-float will be capped at 17.5%. Also, the bookrunners didn't allocate the greenshoe which was inititally said to be up to 300 million shares.
While this does meet the Philippine Stock Exchange’s (loosely enforced) minimum public ownership requirement of 10%, it will likely mean that the stock will still be quite illiquid — especially since the market capitalisation after the share sale will be only $365 million.
Indeed, liquidity and market cap were said to be one of the key concerns expressed by investors during the roadshow. According to a source, the majority of the 20-plus investors that came into the deal were property-focused long-only funds. It was also a very Asia-focused order book, complemented by some domestic demand and a couple of small orders from Europe.
Investors did generally like the company though. Controlled by the Antonio family, it has a 26-year track record when it comes to the development of residential, office, medical and retail properties. It is an asset-light developer and part of its marketing and sales strategy is to team up with key global franchises and individuals with regard to the design of its properties to help capture customers. So far, it has worked together with Gianni Versace, Donald Trump, Paris Hilton and Philip Starck, among others.
At the end of October last year it had completed 20 condominium and commercial buildings with a total gross floor area of more than 548,200 square metres. It was also in the process of developing four master-planned communities that are expected to include 23 condominium and commercial buildings, and 955 single detached homes with a total floor area of close to 1.2 million square metres. Its residential developments are viewed to be high-end and many of them are targeted at overseas Filipino workers and foreign expatriates.
The final deal size of approximately 1.33 billion shares accounted for 15% of the enlarged share capital. They were offered in a range between Ps1.75 and Ps2.35 each and priced at the bottom for a 2012 price-to-earnings valuation multiple of 7.8 times. This put it at a discount to similarly sized developers SM Development and Filinvest, which trade at about 11.9 times and 8.8 times this year’s earnings respectively. It also came at a discount to the Philippine property development sector as a whole, which is currently trade at an average 14.2 times. However, excluding highly valued outliers such as Ayala, the sector average drops to 9.3 times.
Dutch pension group APG, which bought into the company early last year through a Ps1.6 billion convertible bond, is converting its CB into shares in connection with the follow-on offering and will end up with a stake of slightly more than 10%. It has agreed to a 12-month lock-up before selling any of them.
Parent company Century Properties Inc’s shareholding will drop from 97% to about 72%.
The pricing on Friday followed a five-day management roadshow and a three-day bookbuild, which reflected the fact that the share sale was essentially a re-IPO of the company. UBS acted as the sole bookrunner for the offering, while Macquarie was a joint lead manager.