The Securities and Exchange Commission (SEC) has approved a plan by leading mass housing developer 8990 Holdings to raise as much as P5 billion from an offering of perpetual preferred shares.
Based on a document submitted to the SEC, the corporate watchdog has allowed 8990 Holdings to sell as much as 50 million new preferred shares by way of primary offering at P100 each within a three-year period.
The company targets to launch the perpetual preferred shares from Sept. 29 to Oct. 10 this year, 8990 Holdings investor relations officer Tracy Ilagan said on Friday.
8990 Holdings has mandated China Bank Capital to underwrite the offering.
Subject to approval by the Philippine Stock Exchange, 8990 Holdings plans to list and trade the perpetual preferred shares on the local bourse.
Based on the documents, 8990 Holdings will use the proceeds to refinance existing debt obligations as well as those of its subsidiary 8990 Housing Development Corp. The net proceeds will be infused into 8990 Housing as equity through the subscription by the company of additional shares.
“The company incurred significant expenditures to acquire land for the development of new mass housing projects. To partially fund these activities, the company obtained and secured financing, partial payment for which the company intends to be funded from the net proceeds of the offer,” based on the prospectus cleared by the SEC.
Preferred stocks receive priority over common stockholders in the payment of dividends and liquidation of assets. But unlike holders of common stock, investors’ earnings are fixed and they do not benefit from earnings that exceed the dividend.
A perpetual preferred stock has no maturity date and dividends are paid indefinitely. However, the issuer will typically have the option to redeem the instruments under specific terms, thus giving the instrument synthetic maturity on which yields will be based.
Asked why 8990 Holdings picked perpetual preferred shares as its fund-raising instrument, Ilagan explained: “We have opted to use this over debt which may be cheaper since we are already nearing our debt covenant.”
8990 Holdings has committed to existing creditors to limit its net debt to 1.5 times its equity base. As of end-June this year, 8990 Holdings had P1.35 in net debt for every P1 of equity.
Ilagan said proceeds would be used to pay off some of 8990 Holdings’ debt, noting that the goal would be to have less than P1 of net debt for every P1 of equity.