Latest IPO and listing development

Asia United Bank Corp. was listed last Friday, with the assigned trading symbol of “AUB.” The listing was actually preceded by an initial public offering (IPO) involving the issuance of 88 million new AUB common shares at the offer price of P95 a share until May 14.

Acting as sole global coordinator for the public offering was UBS AG, Hong Kong Branch, which also acted as joint bookrunners and joint lead managers with Credit Suisse (Singapore) Ltd. BDO Capital and Investment Corp. and First Metro Investment Corp. acted as domestic lead underwriters.

The IPO is broken down into 80 million common shares for public subscription and 8 million common shares for market-making purposes. The latter is what is called the “over-allotment or greenshoe option” given to underwriters in connection with their function as stabilizing agents, particularly “to increase supply of shares and smooth out price fluctuations if demand surges.”

Underwriters are ordinarily allowed to have an over-allotment option of 15 percent or more to stabilize the price of the stock and prevent it from going below the offer price. This will be exercisable within 30 days from the listing date. The option can be exercised in whole or in part depending on the performance of the company’s stock price right after listing.

In this connection, UBS partially availed itself of its over-allotment option last Friday. It sold 200,000 shares as demand was high and the price of the shares traded above the offering price. In turn, UBS is obligated to handle the buyback of shares when the price of the stock drops below the offering price.

This market-making function of the underwriters will continue in the next 30 days to stabilize the price of AUB.

Summary

A total of 320 million common shares were listed last Friday. This included the 240 million common shares held by shareholders prior to the IPO and the 80 million newly issued common shares only. Following the PSE’s revised listing rule, there is a lock-up on shareholders owning at least 10 percent of the outstanding shares of a company for listing. This rule is part of the policy and market strategy to prevent unnecessary price fluctuations caused by unregulated trading activity on the newly listed stock, or for AUB in the present instant.

As provided for in the regulation, shareholders will “not be allowed to sell, assign or in any manner dispose of their shares for a period of 180 days” or six months after the listing of the shares. On this basis, AUB has three shareholders who will be affected by the lock-up policy.  First is Republic Biscuit Corp., which holds about 105.6 million common shares equivalent to 32.19 percent of outstanding shares, assuming full exercise of the over-allotment option (240 + 80 + 8 = 328 million shares); second is Kuo Yu Philippines Holding Corp., which holds 60 million common shares or 18.29 percent, and third is Lambda Holdings Corp., which holds about 48 million common shares or 14.63 percent.

The three stockholders control a total of about 213.6 million common shares, equivalent to 65.12 of outstanding shares after the IPO (inclusive of the over-allotment shares).

Further to the foregoing lock-up provisions, it is also significant to note that “the PSE and AUB have agreed with the joint bookrunners and joint lead managers and the domestic lead underwriters that, other than in connection with the overallotment option and the issuance of stock dividends, for a period of 180 days after the listing date, neither AUB nor any person acting on its behalf will, without the prior written consent of the joint bookrunners and joint lead managers and the domestic lead underwriters issue, offer, sell, contract to sell, pledge or otherwise dispose of (or publicly announce any such issuance, offer, sale or disposal of) any common shares or securities convertible or exchangeable into or exercisable for common shares or warrants or other rights to purchase common shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the common shares, including equity swaps, forward sales and options.”

Luckily for the original shareholders, there are no AUB common shares that are subject to the 365-day lock-up policy of the revised listing rule.

Bottom line spin

The underwriters also placed about 56 million shares or 70 percent of the total stock issue outside of the Philippines. Only 24 million shares were distributed locally following the claim that foreign investors were more inclined to hold on to fundamentally sound investments and were more dependable for the longer term than local investors.

Looking at last Friday’s market data, AUB opened at P101.50 a share upon listing. Thereafter, it hit the high of P105.10. But by the end of trading for the day, however, AUB shares closed at P104.

AUB also had a total turnover value of P2.1 billion on a total volume of about 20 million shares, which was equivalent to 25 percent of the newly issued shares of 80.0 million. About P526 billion of total value turnover last Friday was from foreign selling. This was about 26.3 percent of last Friday’s transaction of P2.1 billion and 10 percent of overall foreign placement.

Judging from the foregoing market results, it looks like foreign investors continue to be more dependable prospects to provide price stability to public offerings than local investors.

(The writer is a licensed stockbroker of Eagle Equities, Inc..  You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com)