PLDT fund sells $94 million worth of Metro Pacific shares

PLDT's Beneficial Trust Fund offloads 6.95% of the Philippine infrastructure company, representing almost half its stake.

A 6.95% block in Philippines infrastructure company Metro Pacific Investments (MPI) was in the market yesterday and was met with enough interest to allow for a tight discount and a partial exercise of the upsize option.

The seller was Philippine Long Distance Telephone's (PLDT) employee retirement fund (known as the Beneficial Trust Fund, or BTF), which reduced its stake in MPI to about 9% from 16% and raised Ps4.2 billion ($94 million).

While small in dollar terms, this was still a large deal for the Philippines, which is a thinly traded market. Yesterday, the total trading volume amounted to only $80 million, or the equivalent of 85% of the value of the MPI block. The deal also accounted for about 50 days' worth of trading volume in MPI, making it a significant liquidity event in the stock.

The shares were offered at a fixed price of Ps3.00 per share, which represented a discount of 3.2% versus yesterday's closing price of Ps3.10. However, the share price only pushed up to that level right at the end of the session, after trading between Ps3.00 and Ps3.05 for most of the day. It also closed at Ps3.05 in the previous two sessions, so one could argue that the discount was really only half of what it was on paper.

Even so, there was sufficient interest for the deal to be increased to 1.4 billion shares from 1.1 billion, according to a source, which boosted the original deal size from $74 million. CLSA, which acted as the sole bookrunner, had the option to increase the deal by 500 million shares, but chose to push out only 300 million of those.

More than 20 investors, principally long-only funds, participated in the transaction, which is decent for a Philippine placement -- especially for a size below $100 million. Most of the demand came from Asia, including the Philippines, with additional interest from the UK and the US. Some existing shareholders took the opportunity to add to their holdings, but the order book also included a lot of new names, the source said.

Aside from being a liquidity event, the deal also came at a time when MPI is regaining favour with investors following a restructuring of its holdings in Manila Electric Company (Meralco). MPI had come under fire after it, in November last year, stepped in with a counter bid for a 6.7% stake in Manila Electric Company (Meralco) held by First Philippine Holdings (FPH) to prevent the shares from falling into the hands of the San Miguel group and its allies. If the latter had happened it would have given the San Miguel group majority control of the company, which is the largest electricity distributor in the Philippines.

MPI already owned a 13% stake in Meralco, which it acquired earlier in the year, and the asset was generally viewed as a positive investment for MPI. However, investors were unhappy with the price the company paid for the additional shares, which changed hands at

Ps300 apiece, or at a total cost of Ps22.4 billion ($470 million). That equalled a 36% premium to the market price at the time, a 60% premium versus the previous week's close and a massive 138% more than that what it paid for its initial investment into Meralco.

The fact that MPI and PLDT, which have the same ultimate parent company (Hong Kong-listed First Pacific), both held shares in Meralco was also seen as confusing and there was little clarity on what they each sought to do with their holdings. The restructuring, which took place in early March and saw MPI's entire 14.5% stake transferred into a new holding company -- Beacon Electric -- will benefit the company in various ways, according to analysts, including earnings accretion coming from equity accounting; and an overall reduction in interest expenses. According to one analyst report, MPI's earnings will rise by 40% to P4.7 billion ($105 million) this year from an estimate of about P3.3 billion before the restructuring.

PLDT also transferred part of its stake in Meralco into Beacon Electric. 

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