SM raises $250 M through offshore convertible bonds
MANILA, Philippines—Tycoon Henry Sy’s flagship holding company SM Investments Corp. has raised $250 million from the sale of offshore five-year bonds which investors can trade into equity, becoming the first convertible bond (CB) offered out of the Philippines this year.
“This landmark transaction provides SMIC with attractive, low-cost financing, while achieving a conversion price at a premium to the current share price,” SMIC disclosed to the Philippine Stock Exchange on Friday.
SMIC will pay a coupon rate of 1.625 percent on the bonds while investors’ yield-to-maturity or expected gain for the lifetime of the bond is 2.875 percent per annum. The conversion premium was set at 20 percent.
The conversion premium indicates how much premium the investor has to pay to control a certain number of shares through CB conversion rather than buying them outright. This is usually seen as a guidance on how the CBs will perform in relation to underlying shares.
The offering attracted “high quality investors from across Asia and Europe,” the disclosure said.
The transaction is SMIC’s second CB issuance in its corporate history, after its maiden issuance in 2007. Citigroup and J.P. Morgan acted as joint bookrunners for the issuance.
“It is clear that the Philippine capital market is off to a healthy start in 2012, and Citi will continue to leverage on our global leadership to lead and support business initiatives and innovation in the equity markets,” said Citi country officer Sanjiv Vohra.
CBs are seen to thrive in this era of low interest rates and volatile stock markets as investors have the best of both worlds – a fixed return and a stock option in one instrument.
“There is strong interest in convertible bonds from issuers who are attracted to the ability to raise cost effective financing. On the buy side, there is plentiful liquidity and thus investors are looking for strong credits to invest in,” said Kristine Braden, global banking head at Citi Philippines.
CBs are worth their cash redemption value or the market value of the shares into which they are convertible, whichever is higher.
SMIC said it would use the proceeds “for general corporate purposes and the refinancing of existing debt.”
“The Philippines is enjoying a great deal of interest from investors at the moment, and we’re pleased to be working with SMIC again,” Vohra said, noting that Citi was joint lead manager for SMIC’s $400-million issue and bond exchange deal late last year.
“That was the first ever liability management transaction by a Philippine corporate issuer and at the time of issue, featured the lowest ever yield for a Philippine corporate issue of any maturity at the time,” he added.
SMIC through various subsidiaries is the dominant player in Philippine banking, shopping mall and retailing businesses as well as a fast-growing player in residential condominium and hotel/convention center development.
