Landbank eyes to acquire majority stake at PDS

The Land Bank of the Philippines is eyeing to acquire a majority stake at the Philippine Dealing System Holdings Corp. (PDS).

In a Jan. 16 letter to the state-run lender’s board of directors, president and chief executive Alex V. Buenaventura said he was recommending the acquisition of at least 66.67 percent of PDS.

Landbank owns 1.56 percent of PDS through the Bankers Association of the Philippines (BAP), Buenaventura noted.

“On June 15, 2017, BAP signed a share purchase agreement allowing the Philippine Stock Exchange (PSE) to purchase 1,488,902 common shares equivalent to 23.8 percent of the total outstanding stock of PDS for P476,448,640 or at P320 per share. This implies a valuation of P2 billion for PDS and a PE ratio of 8.10x based on 2016 PDS earnings. Research on the financials of comparable market infrastructure enterprises in the region and globally show that such businesses trade at an average LTM PE ratio of 34.1x and 35.8x, respectively. This indicates that at a price of P320 per share, PDS is undervalued and purchasing PDS shares could be a profitable investment for Landbank,” Buenaventura said.

“Moreover, Landbank will benefit from stable recurring cash flow from the various fees PDS charges to market players as the country’s central securities depository and fixed-income exchange. Over 70 percent of the income of PDS is from the provision of services as a depository, registry, and financial intermediary and over 20 percent of revenues come from trading services, the latter an area of opportunity as the local bond market rnatures,” according to Buenaventura.

Buenaventura said he wanted to secure board approval of his recommendation to acquire a majority stake at PDS when they meet on Jan. 23.

“The objectives are to increase Landbank profits and to accelerate development of capital markets in the country,” he said.

To facilitate the acquisition, Buenaventura also sought from the Landbank board an authority to formally engage the Development Bank of the Philippines as the financial advisor for the transaction, pursuant to Republic Act No. 9184 or the Government Procurement Reform Act.

“The engagement of DBP is a vital preparatory act to initiate the acquisition process,” Buenaventura said.