SM Investments raises $150 million from top-up placement

The deal comes on the back of a strong rebound in the share price and is increased by 50% after attracting solid demand.
SMIC offers broad exposure to the domestic consumption story in the Philippines
SMIC offers broad exposure to the domestic consumption story in the Philippines

Philippine conglomerate SM Investments Corp (SMIC) last night took advantage of a strong recovery in its share price to raise $150 million from a top-up placement.

In a reflection of a recent pick-up in investor risk appetite, the deal attracted solid demand and was upsized by 50% from an initial $100 million.

Bankers say they are trying to meet this renewed demand by bringing more placements and block trades to the market, but have difficulty finding the supply. Some investors or issuers don’t want to sell as their share prices are still not at the “right” level after the correction in May and June, while others can’t since they are bound by earnings-related blackouts.

SMIC’s share price has gained 32% from a late June low of Ps728 and yesterday’s close of Ps961.50 was less than one peso below its 2013 high in May, before the US Federal Reserve chairman Ben Bernanke spooked markets with his comments about easing off on the US stimulus programme. Based on the latest market price, SMIC is up 36% since the start of the year, which is more than twice the gain in the broader Philippine market.

Through SMIC, investors also get a pretty broad exposure to the domestic consumption story in the Philippines, which makes it an interesting stock for international investors — particularly since it is one of the more liquid plays in the domestic market. SMIC is the biggest operator of shopping malls in the Philippines through separately listed SM Prime and is also involved in the operation of supermarkets and department stores, property development, hotels and banking.

However, while international investors are becoming increasingly keen on good investment opportunities, they are still price sensitive, and some accounts were said to have been looking for a greater discount to compensate for SMIC’s recent gains and current valuation. As with other Southeast Asian markets, overseas investors are also wary of the continuing decline in the peso versus the US dollar, which does erode their share price gains and amplifies any potential losses.

In local currency terms, the Philippine benchmark index is now up 14.6% so far this year, which makes it the best performing market in Asia ex-Japan. However, in US dollar terms, the gain is only 7.9%.

So, perhaps it was not a huge surprise that international long-only funds were the smallest group of investors participating in the SMIC trade. However, together with the domestic investors, most of the deal did still go to long-only accounts, one source said. The rest was picked up by international hedge funds. In all, about 40 investors took part in the transaction.

The deal launched at about 4.10pm Hong Kong time and was covered in less than an hour. The order books were kept open until 9.45pm to give US investors a chance to look at the deal.

SMIC initially sought to raise $100 million, which would have translated into about 4.85 million new shares. It also flagged on the term sheet that an upsize option was “available”. It didn’t specify the potential size of the option, however, but waited for the feedback from investors before making a call on that.

The shares were offered at a price between Ps900 and Ps920, which translated into a discount of 4.3% to 6.4% versus yesterday’s close.

In exchange for the 50% increase in the deal size, the price was fixed at the bottom of the range for the maximum 6.4% discount.

At the final size, the deal accounted for slightly less than 1% of the existing share capital and about 12 days of trading. The deal was done through a top-up placement, with several entities of the controlling Sy family first selling existing shares and then buying the same number of new shares at the same price from the company.

The fund-raising was pretty opportunistic in the sense that SMIC doesn’t have any specific uses for the proceeds. Investors were told that the money will go towards general corporate purposes.

The timing was also a bit surprising since SMIC is due to report its second-quarter earnings next Thursday (August 8). However, there are no blackout regulations in the Philippines that prevent a company from issuing new shares this close to earnings.

The SM Group is also in the process of consolidating its property businesses that are currently split between several different entities into one company, SM Prime. As part of the multi-step reorganisation, SM Land, which is currently a wholly-owned subsidiary under SMIC, will be merged into SM Prime.

According to earlier announcements, the intention is to create an integrated real estate company that can undertake bigger projects. The restructuring will almost double SM Prime’s total assets to about $6.5 billion.

Although it is still continuing, the restructuring isn’t believed to have had any impact on the demand for SMIC shares last night as the details have been known for a couple of months and are believed to be fully discounted in the shares prices already.

The deal was arranged by UBS.

¬ Haymarket Media Limited. All rights reserved.