Manila Water has priced the international portion of its IPO at the top end of the price range after attracting a very strong order book. The 745.3 million share deal was priced over the weekend at Ps6.5 per share, netting the Ayala-controlled company Ps5.35 billion ($97.8 million) pre greenshoe.
The international portion will account for two thirds of the overall deal post greenshoe, with the fixed price retail subscription period scheduled to run this week ahead of listing on March 18. UBS ran the international books, with BPI overseeing the domestic offering.
At Ps6.5 per share, the deal has been valued at 10.3 times 2005 earnings on a tax-adjusted basis, or 7.7 times on an unadjusted basis. At pricing it will run a dividend yield of 3.8%.
Specialists say the final order book came in at $900 million, equating to an oversubscription ratio of 15 times. A total of 120 accounts participated of which about 20 were Philippines dedicated funds.
The vast majority of investors were regional funds looking to re-weight their portfolios to account for the phenomenal performance of the Philippines stock market over the past four months, as well as take advantage of continuing momentum.
As such there were a number of large orders relative to the smallish deal size, with specialists reporting more than 10 orders for more than $20 million.
By geography Asia accounted for 55%, Europe 25% and the US 20%.
Investors' strong showing is likely to auger well for SM Investments Corp (SMIC), which began international roadshows for its Ps17.25 billion ($315 million) to Ps768 billion ($768 million) IPO yesterday (February 28) via Macquarie and BDO Capital.
Based on the syndicate's 2005 forecast net income of Ps7 billion to Ps7.3 billion and an IPO range of Ps230 to Ps300, fund managers say the deal is being marketed on a P/E multiple of 13.5 to 17.8 times 2005 earnings.
The most obvious comparable is Ayala Corporation, the Philippines largest listed conglomerate, which shares a broadly similar business profile to SMIC. The former is currently trading at Ps8.10, which equates to around 22 times to 28 times 2005 earnings.
The stock has been a strong outperformer on the local exchange, having risen 22.73% so far this year and 69.43% on a one-year basis. It is currently quoted at Ps8.10, equating to a market capitalization of Ps125 billion ($2.41 billion).
Analysts have assigned a pre-money fair valuation of $1.75 billion to SMIC. The final freefloat, on other hand, has been kept flexible.
Pre deal, the Sy family owns practically 100% of the company and may sell secondary shares in the offering depending on investor demand and price sensitivity. The maximum number of secondary shares they will sell has been capped at 25% of the total deal.
As such, the freefloat could range between 15% and 30%, although specialists say it is likely to come in around the 20% level. According to the deal's prospectus, the deal will comprise a minimum of 75 million shares and maximum of 140 million shares.
Ayala Corp has a current asset base of Ps198 billion, of which Ps72 billion derives from Ayala Land, Ps48 billion from Bank of the Philippines Island, Ps55 billion from Globe Telecom and Ps21.6 billion other.
It also has current debt of Ps35.5 billion and is trading at a 10.8% discount to NAV. Analysts say it has historically traded in a 10% to 15% band.
SMIC has a current asset base of Ps112 billion, of which shopping malls accounts for Ps42.5 billion, retail Ps13.44 billion, real estate Ps6.72 billion, equity investments (banking and a 6% stake in San Miguel) Ps23.52 billion and other Ps25.76 billion. Total debt stands at Ps44 billion and the company is being marketed at a 15% to 20% discount to NAV.
SMIC has three listed subsidiaries - Banco de Oro, SM Prime (shopping malls) and SM Development (property). The property arm has an appraised value of Ps107 billion, but is accounted for at acquisition cost on the parent's balance sheet.
SMIC currently owns 52.9% of Banco de Oro, which is currently trading on a 2005 P/E of about 12 times and a price to book valuation of 1.7 times.
It owns an effective stake of 52% in SM Prime, which is currently trading around 16.4 times 2005 earnings.
Historically most of the group's growth has come from banking and shopping malls, but analysts say the property arm will progressively take centre stage as the group develops its 5,500 hectare site in Batangas, 70km outside of Manila. Overall, SM Development has a 6,000 hectare landbank, the largest of any corporate in the Philippines.
Net income for the 2003 financial year amounted to Ps4 billion. It is forecast to grow to Ps5.2 billion for the 2004 financial year (March year-end), then jump to Ps7 billion to Ps7.3 billion over 2005.
The company has indicated that it will pay a minimum 20% of net income in dividends. Towards the bottom end of the price range, this will equate to a yield around the 2% level.