$125 M worth of JG Summit shares sold to foreign investors

MANILA, Philippines—The Gokongwei group has sold to overseas investors $125 million worth of shares in JG Summit Holdings Inc. equivalent to around 3 percent of its outstanding stock, in an equity placement deal meant to boost the holding firm’s stock trading liquidity.

JG Summit affiliates, including Universal Robina Corp., placed out a total of 215 million shares at P25 per share in an overnight equity deal, the holding firm disclosed on Friday.  URC accounted for 57.66 million shares or 26.8 percent of the deal, which was arranged overnight by Swiss investment bank UBS.

Because the transaction was priced at a 12-percent discount to JG Summit’s closing price of P28.50 on Thursday, news about the deal dragged down JG Summit’s share price on Friday by over 11 percent.  The market was reminded of a similar equity place-out transaction that weighed down shares of Petron Corp. last month which, however, made it attractive to bargain-hunters.

“Their aim is to widen subscriber base and boost liquidity of the stock.  That’s fine but there’s going to be dilution.  However, the strong operations of its subsidiaries will negate dilution.  Besides, JGS is cheaper compared with its peers Ayala Corp. and SM Investments Corp.,” said Manny Cruz, chief strategist at Asiasec Equities, Inc.

In an interview, JG Summit senior vice president Bach Johann Sebastian said the selling shareholders had agreed to the selling price of P25 per share while JG Summit was trading at around P26.50 to P27 per share.

“At that time, the discount was not too big,” he said.

Despite the near-term decline in share prices, Sebastian said, this transaction should eventually bode well for JG Summit as this place-out allowed more overseas institutional investors to buy shares of the company.  The primary purpose was thus to widen the public float rather than conduct any fund-raising, putting the conglomerate in a better position to attract foreign funds that have turned bullish on the Philippines.

“The transaction was done in order to widen the shareholder base of the company, and as a response to strong demand for the company’s stock,” the JG Summit disclosure said.

Prior to this transaction, 27 percent of JG Summit’s shares were held and traded by the public, well in   in compliance with the 10-percent minimum public ownership required by the Philippine Stock Exchange for continued listing on the exchange.

“But even then, the average trading volume is thin,” Sebastian noted.

In the disclosure, JG Summit said the initial equity placement offer was only $75 million but due to “strong global investor demand amounting to nearly three times the base deal size,” the transaction was upsized to $125 million.

JG Summit is engaged in the food, airline, property, banking and petrochemical businesses and also holds a minority interest in dominant telecom provider Philippine Long Distance Telephone Co.