SM Investments readies plan to attract US investors

SM Investments Corp. is setting up an American depositary receipt (ADR) system to open a window for US investors to indirectly trade shares in the country’s biggest conglomerate in their own time zone.

In an interview with the Inquirer last week, SMIC chief finance officer Jose Sio said the conglomerate was working with Bank of New York Mellon to create the program.

“We’re working on the papers now,” Sio said. “Our purpose there is that there are some investors in the US who can’t directly invest in SMIC because it’s not listed in the US stock exchange.”

Through the ADRs, Sio said these investors could invest in instruments backed by SMIC shares.

ADRs refer to negotiable certificates issued by a bank in the US that serve as a proxy to a specified number of shares in a foreign stock that is traded on the stock exchange. These are denominated in dollars, with the underlying security held by a US financial institution. Such an instrument is deemed a good option to acquire an interest in a foreign company while collecting dividends and capital gains denominated in dollars.

A growing number of large-cap Philippine companies are seeking to tap the pool of US ADR investors to enhance visibility and global presence and diversify and broaden shareholder base. Earlier, SM’s banking arm Banco de Oro Unibank set up an ADR program. Other companies with ADR programs are Metro Pacific Investments Corp. and Philippine Long Distance Telephone Co.

“With the ADRs, SM stands to benefit from the potential increase in accessibility by US investors under the recently secured investment-grade status of the Philippines. It will also set the stock above most of its peers in terms of investor awareness and visibility,” said Jose Mari Lacson, head of research at stockbrokerage Campos Lanuza & Co.

“And this may pave the way for a level 3 ADR offering in the future, setting SM at par with PLDT in something other than the market cap,” he added. Level 3 ADR means the issuer is selling ADRs to raise new money, getting the benefit of US listing and its security treated like that of any mainstream American company.

Sio said the type of ADR planned by SMIC was yet to be finalized but noted that the group would not likely go to the extent of listing its ADRs on the New York Stock Exchange similar to those of PLDT.

Asked where the shares to back up the ADRs would come from, Sio said: “It depends on how much demand (there will be). Bank of New York Mellon will tell us. We can either issue it or they can buy in the market.”

SMIC recently obtained approval from the Securities and Exchange Commission to beef up its capital stock from P7 billion to P12 billion to cover stock dividends and prepare for future expansion.

Meanwhile, Sio said top officials of SM’s property group were embarking on a global no-deal roadshow to explain the program to consolidate all companies into a single listed vehicle under SM Prime Holdings Inc., which will be the biggest property company in Southeast Asia in terms of market capitalization at $14 billion.

The consolidation is intended to create an integrated real estate company, which will allow the merged entity to undertake larger-scale projects with the participation of all of its business units. This expanded scope, under a “simpler and more transparent” corporate structure, is expected to “create efficiencies and further crystalize the value of the SMIC’s real estate businesses.

SM’s property team has just finished the roadshow in the US and Singapore and was off to Europe this week, Sio said. “They are visiting the big-time investors to explain the consolidation,” he said.

The SM property consolidation, with a transaction value of P279 billion, will involve three steps:

Privately held unit SM Land Inc. will offer existing shares of SM Prime in exchange for the outstanding shares of residential property units SM Development Corp. and Highlands Prime Inc.

SM Land will be merged with SM Prime, with the latter as the surviving entity.

SM Prime will acquire specific real estate companies and assets currently held by SM Investments in exchange for new shares in SM Prime.