Will ‘tsupiteros’ snub Converge debut? Firm says it’s OK

Fiber internet and digital service provider Converge ICT Solutions Inc. is expected to complete its P29-billion initial public offering (IPO) this week, mostly buoyed by strong demand from foreign investors.

The offering is seen “going well” given strong appetite among foreign investors.

“We don’t expect the local tranche to be oversubscribed,” said one of the arrangers of the IPO, referring to the 30-percent tranche. But since foreign investors have “oversubscribed,” the source said there was no need for a strong push in the local market.

As such, the arranger said the offering would be able to weed out the “tsupiteros” or those who are interested only in quick gains.

On the trading participant tranche, the arranger said demand was very good considering the current environment. If trading participants could get even just 50 percent of the allotment, the source said the offering would be a “huge success.”

Upon listing on the Philippine Stock Exchange this Oct. 26, Converge would have a P126-billion market capitalization, more valuable than some of the companies that comprise the benchmark Philippine Stock Exchange index (PSEi). It would have a higher market cap than retailer Robinsons Retail Holdings Inc. (P103.8 billion), Security Bank (P68.5 billion) or DMCI Holdings (P56.43 billion).

“This is truly an exciting time for Converge ICT as the fixed broadband market in the Philippines is currently at an inflection point and is expected to grow at an accelerated pace. With our expertise, products and strong value proposition, we aim to provide reliable and affordable internet to more Filipinos nationwide,” Dennis Anthony Uy, founder and CEO of Converge ICT, said in a press statement on Wednesday.

Converge ICT is offering up to 1.731 billion primary, secondary and overallotment option shares at P16.80 apiece.

Warburg Pincus, a leading global private equity firm, has been the largest and most important investor and partner to Converge ICT.

Uy said the partnership with Warburg Pincus played a critical role in their growth. “Working with them has enabled us to leverage their experience, network and resources. We thank them for supporting our goal of giving Filipinos a premium internet experience,” he said.

Warburg Pincus managing director Saurabh Agarwal said: “We strongly believe that Converge ICT is well-positioned to further capture the tremendous market opportunity and we look forward to continue to be an important part of its exciting growth journey in the future.”

Converge ICT owns and operates an end-to-end proprietary fiber network spanning over 35,000 kilometers in length, reaching around 4.1 million homes in over 200 cities and municipalities across Luzon. As of end-June, its infrastructure delivers internet service to over 731,500 residential subscribers, more than 3,000 large enterprises and corporates and almost 7,500 small and medium enterprises.

At its offer price of P16.80 per share, leading online stock brokerage COL said it would trade at an enterprise value (EV) multiple of 15.6 times the projected 2020 cash flow based on earnings before interest, taxes, depreciation and amortization (Ebitda). This is seen as a significant premium vis-a-vis the 5.4X median EV/Ebitda multiple of its regional peers.

For its EV/Ebitda to be comparable with its regional peers, COL estimated that it would need to grow its Ebitda by threefold to P22.4 billion by significantly expanding its current customer base and increasing average revenue per user.—Doris Dumlao-Abadilla INQ