Trading price of SMC

TRYING early Friday night to have a good night’s rest for the 15th Chairman’s Cup Golf Tournament of the Philippine Stock Exchange (PSE) the following day, I was roused by late calls regarding the results of the secondary shares offering of SMC.

People seemed so concerned about what could be the impact of the decision of SMC to allow its underwriters to tap the shares allotted for oversubscription demand.

Involved in the fundraising campaign of the company was the sale of a number of common shares and units of dollar-denominated convertible bonds.

A total of 110.32 million shares were allocated for the common shares portion. This consisted of an allocation equivalent to 78.8 million shares for the international market and 31.52 million shares for the domestic market.

The shares were to come from selling stockholder Top Frontier Investment Holdings Inc. and the company’s treasury, consisting of 82.74 million common shares and 27.58 million shares, respectively.

Some 35.46 million shares were reserved for oversubscription demand, divided into 7.88 million shares for the international market and 27.58 million shares for the local market. These shares may be used to meet oversubscription demand for either the domestic or international market, depending on the assessment of the underwriters.

The over-allotment option may be exercisable within 30 days from the date of the offering.

The additional shares for oversubscription demand would amount to about 32.14 percent of the regular common shares offer.

Bottom-line spin

In addition to the goal of raising money for the “expansion plans of the company on its infrastructure projects,” the exercise was also aimed at widening the firm’s public float to comply with the new criteria for inclusion in the Philippine Stock Exchange index (PSEi), now at 10 percent of issued and outstanding shares, to be raised to 12 percent by September this year.
Per the information presented on Friday at the website of the PSE, the free float of SMC stood at only 8.1 percent.

The sale of 82.74 million shares by Top Frontier would mean a 4.8-percentage point increase in public ownership to 12.9 percent, enabling SMC to meet the bourse’s listing criteria.

In the meantime, the divestment of Top Frontier will not affect its grip on the management of SMC. Along with the shares held by SMC chair Eduardo Cojuangco Jr., Top Frontier will continue to control no less than 62 percent of the voting stock in the company. Needless to say, this will perpetuate the control of SMC by Top Frontier and Coquangco.

Before the public offering, Top Frontier controlled about 47.5 percent of SMC. In turn, Top Frontier is actually 49 percent owned by SMC itself. The rest is controlled by the group led by Roberto Ongpin, Iñigo Zobel and Joselito Campos.

With that situation, some people are worried that the price performance record of SMC in the market may not hold any longer.

Before the voluntary suspension of trading of its shares, SMC shares received serious beatings owing to its then rumored offer price of P140 a share.

Having been priced much less at P110 a share, it is feared that SMC’s shares will receive more beating when trading resumes on Thursday, May 5.
One bright spot in the SMC deal, however, remains. The convertible bonds sale was about 70 percent of the total offering. It has an income feature amounting to 2 percent a year for the bondholder for the next three years. On redemption date, the bonds will be exchanged for common shares at a 25-percent premium of the current offer share price of P110, or at P137.50.

Thus, it is felt that if the market price of SMC shares goes below the offer price of P110, it may not stay down in the medium and long term.
The full-year income impact of SMC’s four power plants (which account for 21.7 percent of the country’s generating capacity) may start to be felt this year. SMC expects Petron Corp. to contribute significantly to its consolidated bottom-line earnings also this year. To recall, PCOR posted an 86-percent growth in net income to P7.89 billion. Petrochemical sales went up 73 percent to P3.2 billion with forex gain of P1 billion.

SMC’s growth and value prospects are expected to be further boosted by its planned participation in the Aquino administration’s PPP program—with projects such as the Caticlan airport, TPLEX and MRT 7—which may drive up the price target to P185 a share.

Index changes on May 9

The composition of the PSEi and its sectoral indices will again undergo some changes on May 9. Security Bank Corp. will replace China Banking Corp. and leave the financial index unchanged. There will be changes in the Industrial index. Twenty-eight companies will now compose the sector, to include Integrated Micro-Electronics Inc., Republic Cement Corp. and San Miguel Brewery.

To be added in the Holding Firm index are Anglo Philippine Holdings Corp. and South China Resources Inc. They will replace Metro Pacific Investments Corp. and Pacifica Inc.

The Property index will have 15 firms, with Polar Property Holdings Corp. to be added. The Service index will still be composed of 17 firms. Leisure & Resorts World Corp. will replace PLDT Communications and Energy Ventures Inc.

The Mining and Oil index will have 14 with Apex Mining Co. Inc., Atok-Big Wedge Co. Inc. and United Paragon Mining Corp. to replace Oriental Petroleum and Minerals Inc. and Philodrill Corp.

(You may reach the Market Rider at [email protected] or at www.kapitaltek.com.)