SMC to sell stake in PDS

 San Miguel Corp. webite

Conglomerate San Miguel Corp. has agreed to sell to the Philippine Stock Exchange a 4-percent interest in Philippine Dealing Systems Holdings Corp. in support of the proposed consolidation of the capital market infrastructure in the country.

In a disclosure, the Philippine Stock Exchange said SMC had agreed to sell its 250,000 shares or 4 percent of PDS. Another minority shareholder Golden Astra Co. also agreed to sell 0.36 percent stake in PDS.

The PSE, which is consolidating shares in PDS Group–the holding firm for fixed-income trading platform Philippine Dealing and Exchange Corp. (PDEx), Philippine Depositary and Trust Corp. (PDTC) and Philippine Securities Settlement Corp.–has valued 100 percent of PDS at P2.25 billion.

The valuation was based on a multiple of 10 times PDS’ earnings for 2013 and 11 times the projected earnings this year. The offer is also priced at twice the book value of PDS, whose main cash cow is the securities depository business under PDTC.

The bourse earlier signed a deal to buy the 28.91 percent stake held by the Bankers Association of the Philippines (BAP) and some member-banks, raising its interest to nearly 50 percent.

The next step is to make a general offer to other shareholders of PDS with the goal of acquiring two-thirds voting rights–enough to execute the merger with PSE and unite the country’s bond and equity bond markets under a single capital market infrastructure.

The depository business is PSE’s immediate motivation to proceed with this acquisition despite the pending legal challenge to the over-the-counter government securities trading business run by PDEx.

PDTC accounts for 70 to 80 percent of PDS’ net income. The remaining 30 percent comes from PDEx, which along with the BAP and financial regulators, is facing a lawsuit for allegedly perpetrating a monopoly in government securities (GS) trading.

Of the fixed-income trading business under PDEx, GS trading accounts for about 80 percent while private corporate bonds and other debt papers account for the rest.

Aware of the legal challenge to PDEx, the BAP and PSE have worked on a provision that will carve out the GS trading portion, allowing the stock exchange to claw back a commensurate amount in case PDEx loses the case.

Apart from SMC and Golden Astra, other PDS shareholders whose shares the local bourse wants to buy are: Singapore Exchange Ltd. (20 percent), Tata Consulting (8 percent), Computershare Technology (8 percent), Philippine American Life and General Insurance Co. (4 percent), Financial Executives Institute of the Philippines (1.54 percent), Investment Houses Association of the Philippines (1.12 percent) and Social Security System (1.54 percent).