SMIC placement

SM Investments raises $151 million from top-up placement

The deal prices at a 6% discount and comes just seven months after the Philippine conglomerate tapped the international CB market.
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SM City Calamba: One of the group's supermalls in Laguna province
<div style="text-align: left;"> SM City Calamba: One of the group's supermalls in Laguna province </div>

Philippine conglomerate SM Investments Corp (SMIC) has raised Ps6.37 billion ($151 million) from a top-up placement, which it says it will use to fund its expansion plan. The fundraising is notable since it comes just seven months after the company sold $250 million worth of convertible bonds. The controlling shareholder, the Sy family, is also viewed to be extremely reluctant to dilute its stake in SMIC, which acts as the holding company for the entire group.

Back in February, sources said the company had chosen to do a CB partly because it allowed it to raise equity at a significant premium to a share price that at the time was at a record high, resulting in less dilution. However, the stock has gained another 10% since then and yesterday’s close was less than 2% below the new all-time high of Ps758 that SMIC hit earlier this month.

And while the placement was of decent size for the Philippines in dollar terms, it accounted for only 1.5% of the enlarged share capital – so the dilution for the Sy family will be marginal. Being a top-up placement, Sy family members participated in the transaction by selling existing shares and then buying back the same number of shares at the same price to ensure that all the money ends up with the company.

The deal, which was completed after the close of trading yesterday, comprised 9.1 million shares that were offered at a price between Ps695 and Ps745 each. The top of the range was equal to yesterday’s closing price, while the bottom of the range represented a 6.7% discount.

According to a source, the deal was well oversubscribed but investors were quite price sensitive, which is not too surprising given the continued uncertainty in global equity markets. SMIC has had a strong year, however, and year-to-date the share price is up 28%. Perhaps as a reflection of that, and the fact that SMIC isn’t that liquid — the placement accounted for about 20 days of trading — the final price was fixed just above the bottom of the range at Ps700, or at a 6% discount.

SMIC’s CB in February was priced at a 15.4% premium over the latest closing price, which resulted in an initial conversion price of Ps781.446. The five-year bonds came with a 1.625% coupon and a yield of 2.875%, and also had a three-year put option for investors.

The source said about 50 investors took part in the top-up placement, which launched at about 4.45pm Hong Kong time and closed at 10pm. Existing shareholders and domestic accounts dominated among the buyers. He estimated that about half of the demand came from local Philippine investors and that about 80% of the deal went to long-only funds.

The Philippines has been one of the favoured equity markets among investors this year with a 22% gain in the benchmark index. This makes it the best-performing market in Asia after Thailand, which is up 23.5%. Meanwhile, SMIC’s widespread business interests, which range from property developments and hotels to retail and banking, makes it a diversified play on the Philippine economy as a whole, and therefore an interesting stock for investors who want to increase their exposure to the Philippines. The company is the controlling shareholder in BDO Unibank, the biggest bank by assets in the Philippines, and the country’s dominant operator of shopping malls.

However, following the strong gains so far this year, six of the 11 analysts that follow the company have a hold recommendation on the stock, according to Bloomberg data. Only three advise investors to buy and the average 12-month target price implies just 3.3% upside.

SMIC didn’t specify exactly how it will use the placement proceeds, beyond saying that they will help fund its expansion plan, or go towards general working capital. It has earlier estimated that its capital expenditure this year will amount to Ps56.8 billion ($1.3 billion).

Among the projects, its listed SM Prime subsidiary continues to open new malls. At the time of SMIC’s first half earnings earlier this month, the company said that SM Prime will open one more mall in the Philippines in September this year, bringing its total number to 46. It also plans to add one mall per year in second- and third-tier cities in China.

In June, SMIC also spent just over $400 million to take up its share of a $1 billion rights offering by BDO Unibank.

Sources say several banks have been working on a potential deal for SMIC, but in the end the top-up placement was arranged on a sole basis by Macquarie, which has worked on several deals for the Sy family during the past few years, including SMIC’s initial public offering in 2005.

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