JP Morgan: P25B Cemex IPO warmly received

JP Morgan executive director and head of banking Philippines Carlos Ma. Mendoza

THE FIRST cement company to debut on the local stock exchange in two decades has drawn strong investor interest on the back of the country’s strong growth story and Pres. Rodrigo Duterte’s resolve to boost infrastructure spending, arranger JP Morgan said.

The offshore book-building for Cemex Holdings Philippines Inc.’s P25.1 billion initial public offering (IPO) was oversubscribed by multiple times even without yet counting in local retail participation, with 30 percent of the IPO gobbled up by “cornerstone” investors such as BlackRock Inc., Fullerton Fund Management Co. ( a unit of Singaporean state investment firm Temasek) and Avanda Investment Management.

“It’s a testament to the growth story of the country and quality of the issuer because Brexit (the referendum that favored Britain’s exit from the European Union) happened on day three of our roadshow and people didn’t expect that to happen. But our book, our demand held together,” said Carlos Ma. Mendoza, executive director and head of banking for Philippines at JP Morgan, one of the joint global coordinators and joint book runners for the offering.

The Cemex IPO is the largest seen in the Philippine Stock Exchange in three years, next to the P28.11 billion offering of Gokongwei-led retailer Robinsons Retail Holdings Inc. in 2013 and the P26.25 billion offering of Sy family-led conglomerate SM Investments Corp. in 2005.

Mendoza said local investors have likewise warmly received the offering. “These people like the story. And what’s there not to like? We have a president focused on infrastructure spending, and this company is exactly where we want it to be.”

“It’s something so basic that’s tied to the growth of the country and it’s an endorsement how even through a political transition, the growth story is holding up,” Mendoza said.

At the same time, Mendoza said having Cemex in one’s portfolio would be a great way for an investor to diversify.

“The top 15 market cap companies in the country are controlled by six business groups. That’s remarkable under-diversification for any Philippine investor – whereas this one is an entire new liquid stock that any investor can invest in, plus it has the global corporate standards of a multinational corporation,” he said.

Because Cemex’s parent company is listed on the New York Stock Exchange, Mendoza said this local unit was being governed by every corporate governance standard that the US imposes.

Cemex is offering 2.03 billion primary shares at P10.75 per share, with an over-allotment option of 304.95 million shares. This will bring about 45 percent of its stock to public hands and set the company’s market capitalization at P55.85 billion upon listing.

Cemex is the largest cement producer by sales volume in the Visayas with around 40 percent share of the market in 2015. It is the third largest cement producer nationwide with around 20 percent of share of the Philippine market by sales volume in 2015, according to the Cement Industry Report. Its long-standing brands include the 75-year old APO and the 100-year-old Rizal brand.

The operating EBITDA of Cemex amounted to P2.93 billion last year, rising from P1.6 billion in 2014. In the first quarter of this year, such cash flow amounted to P838 million.

Net income last year rose to P2.18 billion from P506.6 million in 2014 due to improved gross profit margin and gain on sale of investment in shares of stock in connection with reorganization. Net sales were up by 22.8 percent to P23.94 billion.

The offering will until July 11. Listing on the main board of the Philippine Stock Exchange is tentatively set for July 18. Cemex will use the trading symbol “CHP.”

Apart from JP Morgan, Citigroup and HSBC are the joint global coordinators and joint book-runners while BDO Capital & Investment Corp. is the lead underwriter.

The last cement IPO in the Philippines was that conducted by Alsons Cement two decades ago. This company was later merged into the Holcim group.