AP FILE PHOTO
MANILA, Philippines—The Philippine Stock Exchange suspended trading in shares of Chemrez Technologies Inc. on Friday following the completion of a tender offer made by food and plastic input manufacturer D&L Industries which made the former a 99-percent owned subsidiary.
D&L acquired an additional 65.3 percent stake in the company through a tender offer at P6 per share.
The PSE thus issued the suspension order without saying yet when trading would resume.
With Chemrez’ public ownership going below the 10 percent minimum level required by the PSE for continued listing, D&L has indicated it would most likely cause the voluntary delisting of Chemrez.
Based on the P6 paid in cash for every share tendered by minority investors, this exercise cost D&L around P5.078 billion. The bulk of this was financed by short-term borrowings, D&L said.
“Pre-acquisition, we were in net cash (position). Further, short-term borrowing costs are currently very low — much lower than the overnight or SDA (special deposit account) rates — and there are no indications of interest rates going up anytime soon. Hence, there does not seem to be any urgency to refinance and it is possible to just live with debt as short-term,” D&L executive vice president and chief finance officer Alvin Lao said in a press statement.
As of end-June, D&L had a net cash position of P1.45 billion.
The consolidation of Chemrez into D&L is a strategy intended to maximize shareholder value. Both companies have similar controlling shareholders, managed by the same people and governed by shared values.
The controlling shareholder, the Lao family, believes that Chemrez’s small size in terms of revenues and market cap is not large enough to attract sufficient attention from investors, resulting in the mispricing of shares which in turn was an opportunity for D&L to grow its market capitalization.
Owning 100 percent of Chemrez is seen broadening D&L’s portfolio, strengthening its capabilities, including cash generation, and boosting growth as the specialty chemicals business continues to improve.
From a traditionally resin and powder coating-based company, Chemrez has transformed its portfolio through innovations based on “green” chemistry principles. Through its various lines of specialty products, it supplies environment-friendly and biodegradable products made from renewable and sustainable raw materials.
Forbes Magazine ranks the Lao family, which controls both D&L and Chemrez, 26th among the Philippines’ 50 richest with an estimated net worth of $625 million.
The consolidation of Chemrez beginning the fourth quarter of 2014 is expected to be accretive to earnings in the same period. Full year consolidation will begin in 2015.
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Chemrez eyes voluntary delisting from PSE