Filinvest postpones follow-on share sale

The Philippine conglomerate says the proposed offer price didn't reflect the true value of the company. Meanwhile, India's Tata Steel fixes the price of its follow-on at the top of the range to raise $766 million.

It was a busy week in Asia's capital markets last week with three convertibles, one exchangeable and numerous follow-ons and blocks. But, in a clear sign that price is still an issue, both for investors and issuers, Filinvest Development Corp on Friday announced that it was postponing its follow-on offering, which had been due to price after the close of US trading last Wednesday.

The Philippine conglomerate, which is owned by the Gotianun family and has interests in property development, banking and the sugar industry, had been seeking to raise between Ps12.5 billion to Ps15 billion ($276 million to $332 million), excluding the 15% overallotment option,  and was set to become the first equity offering of size to price in the Philippines this year.

The company said in a statement to the Philippine stock exchange that the decision to postpone was due to volatile market conditions.

“While there was ample demand from investors for an offering to be completed, the board has decided that the proposed offer price of its equity shares would not reflect the true value of the company,” it said.

The statement suggests that there may have been enough demand to cover the deal towards the bottom of the indicated price range, but that the management was not keen to sell at that price. And to push the price higher would have been difficult after the share price fell 15% on Tuesday through Thursday last week, reducing the indicated discount.

The drop in the share price didn’t come in isolation as several markets in Asia took a beating last week amid concerns about inflation. However, Filinvest did significantly underperform the broader Philippine market which fell 4.8% on Thursday through Friday last week and is now down slightly more than 5% year-to-date. That said, the company’s share price had just about tripled from having traded around Ps2 in the first half of last year to a high of Ps6.10 last Monday, so a bit of a correction was perhaps to be expected.

The deal was marketed without a specific price range during most of the roadshow, but on Tuesday last week the bookrunners said the deal would price between Ps5 and Ps6 per share. This indicated a discount of between 1.6% and 18% versus last Monday’s close. However, by the end of Thursday’s trading, that discount had shrunk to 3.5% at the bottom end of the price range. The top end implied a premium of almost 16%.

Investors may have been willing to accept a tight discount as the deal was viewed as a liquidity event and would have given them an opportunity to buy shares in bulk – something which had been difficult to do when the free-float was only 16% to 17%. Filinvest is also well regarded in the Philippine real estate sector and investors had indicated that they liked the offering as it would give them exposure to a cross section of the economy and the country’s GDP growth. However, to convince them to buy shares at a significant premium to the current market price may have been a harder sell.

Filinvest said in the announcement that it “believes it will have sufficient internally generated cash for its capital expenditure and expansion plans for the upcoming year.” It had earlier said that the money was to be used for the development of land and its hospitality business; to increase the capitalisation of its wholly owned banking business, East West Bank Corporation; for investments into infrastructure and utilities, which is a relatively new business for Filinvest; and for debt repayments.

However, the share price fell another 1.35% on Friday, which suggests shareholders were disappointed with the decision to postpone the fundraising.

Filinvest was looking to sell up to 2.5 billion shares, or a 33.3% stake in the company, through a so called top-up placement. The latter is the preferred method for Hong Kong follow-ons as well and essentially means that an existing shareholder sells a certain number of secondary shares through the placement and then subscribes to the same number of new shares issued by the company at the same price. The reason why they do this is purely technical and has to do with how quickly the shares can be made available for a sale.

The company kicked off the roadshow on January 5 and has since visited six cities in addition to Manila, including: Singapore, Hong Kong, London, New York, Boston and San Francisco. J.P. Morgan and UBS were joint bookrunners, with the latter also acting as the global coordinator.

Elsewhere in Asia, Indian steel producer Tata Steel said in an announcement over the weekend that it had fixed the price of its follow-on offering at the top of the indicated price range, allowing it to raise Rs34.77 billion ($766 million). This came after the deal was six times covered when the bookbuilding ended on Friday.

Qualified institutional bidders (QIBs) ordered 10.4 times the shares that were targeted at them and there was virtually no price sensitivity. The anchor tranche, which accounted for 15% of the total deal, was also completed at the maximum price of Rs610, which created positive momentum for the offering. Meanwhile, non-institutional investors, which are essentially made up of corporate investors and high-net-worth individuals, asked for 7.2 times the shares set aside for them and the retail tranche was 1.6 times covered.

Citi, Deutsche Bank, HSBC, Kotak Mahindra, Royal Bank of Scotland, SBI Capital Markets and Standard Chartered were joint bookrunners.

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