Metro Pacific uses part of upsize option to raise $261 million

Metro Pacific Investments (MPI) received good interest from high-quality long-only investors for its fully marketed share sale that closed at the end of last week, allowing the bookrunners to exercise a large portion of the upsize option. This resulted in a final deal size of Ps12.45 billion ($261 million), which may be increased to $300 million if the 15% greenshoe is also exercised in full.

The Philippine investment company, which focuses on infrastructure assets, had earlier said that it was seeking to sell $200 million worth of shares with an upsize option of $100 million and an overallotment option of 15% that could take the total fundraising to $345 million. It was raising money to pay for the acquisition of a 13% stake in Manila Electric Co (Meralco), which was first announced in March, and other potential expansion projects in the pipeline.

The use of the upsize option would have been important both for the company and for investors. The latter viewed the share sale as a significant liquidity event as MPI currently has a free-float of only 2.7% and a daily turnover of less than $200,000 per day, according to data on the Philippine Stock Exchange website. The deal will increase the free-float to just above 20%, which means more international funds will be able to buy the stock.

However, the company seemingly had to make a concession on price to achieve this as the deal was priced at the bottom of the indicated Ps3.00 to Ps3.75 range. Based on the final price, the company sold 4.15 billion new shares, while the greenshoe may add another 620 million shares. CLSA was sole global coordinator and joint bookrunner together with UBS.

The deal price represents a 37% discount to Friday's close of Ps4.75. However, sources say the lack of liquidity has exaggerated the share price movements -- MPI is up 90% year-to-date -- and today's share price is not a true reflection of the actual value of the company. The share sale seems to have triggered a move towards a more realistic pricing, with the share price dropping 17% during the two-week roadshow, leaving the company with a market capitalisation of about $940 million.

The deal was said to have attracted more than 70 investors and, according to a source, most of it was allocated to long-only investors. Aside from the technical aspect of the deal, i.e. the fact that this may have been the first opportunity for many funds to buy a meaningful stake in this company, investors like MPI because of its exposure to the utility and infrastructure sectors in the Philippines. The company has stolen a lead on other private sector Filipino companies with its investments into several high-profile assets over the past couple of years and analysts refer to it as the only pure-play infrastructure company in the Philippines.

The sector is regarded as attractive because it is low risk, but with a high-growth potential.

MPI's acquisition of Meralco, the largest electricity distributor in the Philippines, will add to its current infrastructure assets that range from water and toll roads to hospitals. MPI is buying 144.385 million Meralco shares for about $375 million from two different entities -- a 10.17% stake from the Beneficial Trust Fund of the Philippine Long Distance Telephone Co (PLDT), which is a retirement fund set up on behalf of PLDT's employees, and a 2.79% stake from MPI's parent company Metro Pacific Holdings (MPH) for Ps126 per share. PLDT and MPH are both controlled by MPI's ultimate owner, Hong Kong-listed First Pacific. One-third of the acquisition cost will be settled in cash, while the rest will be covered by the issuance of new shares to the sellers.

In a report issued in August, CLSA analyst Raffy Manalaysay estimated that Meralco will account for more than one-third of MPI's earnings by 2010 and will, together with a potential tax holiday for Manila North Tollways Corp, result in a compound annual growth rate of 85% in MPI's net profit from 2009 to 2011.

On Friday, the Manila Bulletin published a story saying that a consortium comprising MPI and Harbour Centre Port Terminal has been named the winner of the 25-year Manila North Harbour modernisation project. The consortium was the only eligible bidder for the project and had reportedly submitted a bid of Ps14.5 billion ($305 million). However, in a clarification statement filed with the Philippine stock exchange, MPI said that the consortium was "still waiting for the Notice of Award from the Philippine Ports Authority".

If the bid for the North Harbour project is successful, it will be MPI's sixth infrastructure investment. According to a source, the company also intends to increase its current 5% stake in the skyways toll road in the south of the country.

The MPI share sale is the first equity offering of size out of the Philippines this year and the largest since Vista Land and Lifescapes, the country's largest residential home builder, raised Ps21.28 billion ($465 million) from a follow-on offering in July 2007.