Converge ICT Solutions Inc. is set to buy back up to P6.5 billion worth of shares from Coherent Cloud Investments, which currently has a 10.25-percent stake in the listed company.
In a disclosure to the bourse, the internet service provider said that the buy-back program, if fully utilized, could boost the return on equity to shareholders by about 1.5 percentage points to approximately 24 percent.
“The buyback approval is concurrent with the announcement by Coherent Cloud that it will launch a placing of 288.7 million shares, representing approximately 3.8 percent of the company’s outstanding share capital, at a price of P25 per share through an accelerated book build offering,” it added.
The listed company said its unrestricted retained earnings could cover the repurchase of the shares held by Coherent Cloud, which is an affiliate of New York-based private equity firm Warburg Pincus. It will also be funded by existing debt facilities of Converge.
Following the transaction, Converge said its financial position would remain “well within its debt covenants, while capex (capital expenditure) plans continue to remain fully funded through its robust operational cash flow and existing debt facilities, including its recent P10-billion bond.” Capex for the year is set at P26 billion to P28 billion.
The said undertaking would increase the company’s public float to more than 30 percent from about 20 percent in 2020 during its initial public offering. Currently, it is at 26.01 percent, according to the company’s recent annual report.
Free float
Converge said that hiking its free float has allowed the company to be included in MSCI Global Standard Index effective on May 31. The said index tracks stocks across 33 markets.
“A lot of companies have been buying back shares given that prices have been trading at a discount and Converge is no exception,” Regina Capital Development Corp. head of sales Luis Limlingan told the Inquirer.
Converge saw its net income improve by 27 percent to P1.97 billion in the first quarter as the revenues for its residential and enterprise segments grew by 42 percent and 25 percent, respectively.
Warburg Pincus managing director Saurabh Agarwal will still be part of Converge’s board after the completion of the transactions.
“We are extremely proud of what Converge ICT has achieved over the last few years and believe it continues to be well positioned to accelerate its growth trajectory and further capture a significant share of the market,” Agarwal said.
In 2019, Coherent Cloud invested $225 million in Converge to fund its network expansion plans across the country.
“The share buyback highlights the confidence of the founders and management team in Converge ICT’s long-term, sustainable growth potential and value creation as well as the company’s confidence in its continued ability to capture the vast market opportunity,” Converge CEO and founder Dennis Anthony Uy said. INQ