Robinsons Land looks to boost freefloat through follow-on offering

The Philippines property developer will issue $100 million worth of new shares as part of a $225 million deal, with proceeds going towards the opening of nine new malls by 2008.
Philippines property developer Robinsons Land Corp is planning to launch a follow-on share offering next week to raise some fresh cash and, more importantly, increase its freefloat to about 40% from around 7% at present.

The total offer, which sources say will amount to about $225 million, will comprise both new and secondary shares and will include the unwinding of a cross shareholding between RLC and its sister company Universal Robina Corp.

ôRLCÆs freefloat today is about $39 million and after the deal it is going to be about $220 million, which means this is essentially a re-IPO in the international market,ö says one observer.

UBS is the sole international underwriter and bookrunner, while ATR KimEng Capital Partners will arrange the domestic portion of the deal.

Such share sales - which are designed to boost the freefloat and market liquidity - are a growing trend in the Philippines where many companies are tightly controlled by family shareholders, often leaving only 5-7% of the stock to trade in the market. Universal Robina, a producer of consumer foods, did the same thing in February when it boosted its free float to 40.8% from 3.5% through a $200 million equity issue that was also arranged by UBS.

The European investment bank has also led a similar fundraising exercise for property developer MegaWorld this year, while Macquarie Securities, since January 2005, has helped boost the freefloat of Semirara Mining, Banco de Oro Universal Bank and China Banking Corp.

A contributing reason to the low free floats is that the Philippines was one of the first equity markets in Asia and many companies only sold up to $40 million worth of shares when they initially came to market. RLCÆs situation is slightly different, however, as it used to have about 40% of its shares trading in the market until the management embarked on an aggressive buyback exercise after the share price plummeted to a fraction of its issue price just after the millennium.

The families controlling these companies ônow realise that the major international investors, the JFs or Fidelities of this world, have to have a sufficient float and I think you will see a trend of companies seeking to increase their free float to get the valuation they deserve,ö says one banker. ôThe reality is that Filipino companies trade at very big discounts to their comparables in the rest of the region.ö

The ôvaluation punishmentö for having an illiquid stock applies within the country too. RLC trades at a 37% discount to its projected post-offer 2006 net asset value compared with the sector average of 28% - despite being one of the fastest growing property companies, according to a research note issued by JPMorgan last week.

ôRLCÆs stock looks undervaluedà.(and ) we believe it can trade up to a 25% discount, which is the basis of our December 2006 price target of Ps15 per share,ö analyst Kelly Lim said in the note, which initiated coverage on the stock with an ôoverweight rating.ö

RLC closed at Ps13 yesterday (September 4), which is just off last weekÆs record high of Ps13.50 and more than double the Ps5.70 where it started the year. The latest upward push was underpinned by news early last week that the company had signed the largest ever office lease contract in the Philippines with Accenture.

The global technology services and outsourcing company will lease 30,000 square metres of office space in Robinsons Cybergate Center Tower 2 at an undisclosed price, in a deal that confirms RobinsonsÆ status as the biggest landlord for call centres and business process outsourcing (BPO) firms in the Philippines, the company said.

RCL, the real estate unit of Gokongwei-led JG Summit Holdings, is looking to raise about $100 million from the sale of 450 million new shares, while Universal Robina will offload its 17.8% stake which is worth about $90 million based on the current share price, one source said. In the case of sufficient demand there is the option of selling an additional $35 million worth of secondary shares that will be offered by the parent.

The exact deal size will depend on the movement in RLCÆs share price during the two-week book building between September 11 and 22, as a follow-on share sale must be priced within a 10% discount to the 10-day volume weighted average price. The final price is expected to be fixed on September 23.

According to a filing to the Philippine Stock Exchange, the total offering will amount to 932.8 million shares, including the 450 million new shares, 361.1 million secondary shares and the greenshoe of 121.7 million shares. Five percent will be earmarked for domestic investors, while 95% will be sold offshore.

A key attraction for investors is the companyÆs diversified business which aside from the development of office space also includes residential high-rise and housing developments, hotels and malls.

ôNo one else has that diversified a focus. From a risk perspective it is very good, because you get developer revenue as well as recurring rental revenue. There is a nice hedge in there,ö one observer says.

RLCÆs scale û itÆs the second largest developer of malls after SM Prime and by some observers considered the second largest overall in the Philippines after Ayala û and the potential for a valuation boost as the free float increases are other arguments why investors should buy the shares, observers say.

ôIf the deal fails, it will only be because of the price,ö argues one banker.

The company will use part of the proceeds to fund the opening of nine new malls by 2008, which will add to its current portfolio of 18 malls. Some of the money will also go towards its various office and residential projects, the source says.

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