Philippines' LT Group launches $790 million re-IPO

The Philippine conglomerate’s follow-on attracts 11 cornerstone investors, which have committed about 63% of the base size.

LT Group, a Philippine-listed company controlled by the family of local tycoon Lucio Tan, started the management roadshow and bookbuilding yesterday for a fully marketed follow-on, which is aiming to raise between Ps28.8 billion and Ps32.8 billion ($695 million to $792 million).

Reflecting investor enthusiasm, the deal had attracted strong cornerstone demand before the launch. Eleven cornerstone investors have committed to subscribe for 1 billion shares, or 62.5% of the base deal, a source said, adding that they are global long-only investors.

Even at the bottom of the price range, the deal will be the biggest equity fundraising in the Philippines since BDO Unibank raised $1 billion last year from a fully underwritten rights issue, which remains the country’s biggest-ever equity capital markets transaction, Dealogic data show. If successful, LT Group’s deal will be the Philippines’ second-biggest after Cebu Air’s $611 million IPO in 2010.

While the volatile market environment is generally keeping investor sentiment in check, Southeast Asia has seen a number of big deals since the start of the year, partly helped by hopes for growth at home.

Just last week, BTS Group’s infrastructure fund raised $1.4 billion from yield-hungry investors, becoming the biggest IPO ever in Thailand. In late March, private equity firm CVC Capital and the other controlling shareholders of Indonesia’s Matahari Department Store raised $1.3 billion from a fully-marketed follow-on share sale. In February, Mapletree Greater China Commercial Trust raised a similar amount from its IPO in Singapore.

According to the current timetable, LT Group’s books are expected to close on April 16, with pricing the following day, Asia time.

LT Group was previously known as Tanduay Holdings and focused on the production of distilled spirits, including Tanduay Five Years Fine Dark Rhum. But during the past several months the controlling shareholder has injected a number of its other businesses into the company to create a consumer-focused conglomerate under the new name of LT Group.

The follow-on will be the first real opportunity for institutional investors to buy shares in the restructured vehicle, which provides an opportunity to broaden their exposure to the country’s consumer sector and is the only way to access to the tobacco sector.

The deal takes the form of a top-up placement and consists of 1.6 billion shares for a price between Ps18 and Ps20.5 each, which could allow it to raise as much as $792 million. It comes with an overallotment option of up to an additional 240 million, which could increase the deal size to up to $911 million.

LT Group’s stock ended yesterday’s trading up 6.5% at Ps19.48, while the Philippine Stock Exchange PSEi Index ended almost unchanged that day. The index has gained almost 16% so far this year, while Hong Kong’s Hang Seng Index is down about 4% year-to-date.

The price range values the company at a 2013 price-to-earnings ratio of between 14 times and 16 times, based on a reported basis, the source said. It is difficult to make a straight comparison as the conglomerate’s asset composition is unique. But investors are still likely to compare it to other listed conglomerates, which trade at a premium, the person noted.

For example, GT Capital, which is controlled by the Ty family and involved in a range of businesses, including banking, real estate, power generation, auto manufacturing and life insurance, is currently quoted at a 2013 P/E multiple of around 17 times, according to Bloomberg data.

GT Capital was listed in April last year after a highly successful IPO that raised $504 million, and its share price has gained about 64% since then.

UBS is the sole global coordinator and bookrunner for LT Group’s deal.

Given the thin free-float the sale will be carried out in the same way as an initial public offering, with a full management roadshow and a price range — the kind of deal commonly referred to as a re-IPO. One key difference versus an actual IPO is the fact that there will be no retail portion.

Currently, the company has a free-float of just 10.4%, with the remaining 89.6% owned by the Tan family through a holding company called Tangent Holdings.

The deal also gives investors their first chance to gain exposure to PMFTC, the Philippines’ biggest tobacco manufacturer and distributor. The company has a market share of 90% and is a joint venture between Philip Morris Philippines Manufacturing and Fortune Tobacco. Following the recent restructuring, LT Group owns 99.6% of Fortune, which in turn owns 49.6% of PMFTC. The Philippines is one of the biggest tobacco markets in Southeast Asia and has a growing number of smokers.

In addition to the tobacco and spirits business, LT Group is also involved in beverages, banking and, to a smaller extent, properties. According to one source, the tobacco business accounts for almost half of the group’s net asset value, followed by the banking business and the combined brewery and distillery operations.

It is in the process of increasing its stake in Philippine National Bank (PNB) to 59.9%. PNB is listed on the Philippine Stock Exchange and recently merged with Allied Banking Corp to become the country’s fifth-biggest private-sector commercial bank in terms of total assets and deposits.

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