Philippines: IPO takeoff

The Philippines capital markets enjoyed a flurry of activity in the closing months of the year, with a number of firms aiming to hold an initial public offering (IPO) to take advantage of the high levels of liquidity in the marketplace and the increasing momentum in the country’s economy.

Of late, a number of well-established firms are looking to list on the Philippines Stock Exchange (PSE), going public as a means to fund expansion programmes. In turn, investors have been attracted by the buoyancy of the PSE, which has seen its main index rise by around 40% so far this year, second only to Indonesia in the region. The firms are looking to float on the exchange because there is money flowing in and new capital is coming in because of new IPO instruments.

The first in line to benefit is local low cost airline Cebu Air Inc., which closed its IPO in mid-October, having raised more than $540m through the listing of more than 186m of its shares on the PSE, with 70% going to overseas investors.

Cebu has announced it intends to use the capital raised to part fund its aggressive expansion programme, the carrier’s plans including buying 24 new aircraft over the next four years and adding routes across Asia.

PSE chairman Hans Sicat said the airline’s IPO was the second largest in the local stock market’s history, a result he attributed to the high interest in domestic stocks.

“This was the best time for Cebu Air to hold the IPO given the recent bull run in Philippine stocks, Sicat said on October 26.

The budget carrier continued to soar in its trading debut, its shares rising 6.4% on its first full day on the boards. According to Astro del Castillo, managing director of investment advisory firm First Grade Holdings, not only was Cebu’s take off on the PSE a good effort but it could also serve as a pointer to how other upcoming listings should perform.

“They should really take advantage because the stock market is very strong at the moment,” he told local media on October 27.

Others are taking del Castillo’s advice. In mid-October, the PSE’s board gave its approval for the launching of two more IPOs; one being for IP Converge, a subsidiary of the IPVG Corporation, and the other for miner Nickel Asia Corporation.

Internet data center services provider IP Converge is looking to sell just over 45.5m shares, equivalent to one quarter of its total, with the listing date set for December 8. Company officials have said they intend to use the $7.45 to $9.3m expected to be raised from the IPO for data centre and network expansion.

More ambitious is Nickel Asia, which hopes to raise around $162m in its November offering, is gearing up for a round of expansion, looking to make acquisitions to further strengthen its position in the sector.

This increasing activity on the PSE, and the continuing inward flow of capital from overseas, has not only promoted more IPOs but has also seen a spike in interest from overseas brokers and traders, keen to move into an increasingly active market. In late October Credit Suisse was granted trading rights at the PSE, a move the company’s country manager said would allow it to build on the success it had enjoyed elsewhere in the region and make a positive contribution to the Philippines capital markets.

“We look forward to playing a significant role in facilitating greater capital inflows from international investors into the Philippines’ equity market,” Simon Paterno said on October 23.

The tide of IPOs seems set to flow on into the new year, with property developer Ortigas & Co announcing on October 26 that it was looking to conduct an IPO by the middle of 2011, with the funds generated to be channeled into the company’s project development portfolio. One official of the company said it was also planning to make use of real estate investment trusts (REITs) in order to “take advantage of new financial market developments”.

Ortigas’ chief finance officer Emmanuel Rapadas said that the scale and exact form of the IPO would depend on a yet to be completed valuation of the company.

“We’re keeping our options open on how to finance our projects moving forward. At this time we haven’t decided on that,” Rapadas said.

The developer may want to make a decision sooner rather than later if it is to hitch a ride on the PSE’s bull run. That said the risk of hot money exiting the country remains alive unless stock market continues to post above average growth.

 

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