SM Group creates $14-B real estate behemoth

MANILA, Philippines - Sy-led conglomerate SM Investments Corp. (SMIC) has finalized the merger of its real estate businesses, creating a $14-billion company – the most valuable property firm in the Philippines.

The transaction will allow integrated real estate company SM Prime Holdings Inc. to pursue larger scale projects through its operational and financial muscle, executives said.

“The consolidation will give us the scale, the right organization, the agility and the resources that will allow us to take upon each of the highly attractive opportunities that go with a strong macroeconomic environment,” said Henry T. Sy Jr., who will serve as chairman of the board of SM Prime.

The boards of directors of SMIC and SM Prime approved yesterday the plan to consolidate the property-related businesses of SMIC.

The transaction involves several steps. First, private firm SM Land Inc. will acquire upscale developer Highlands Prime Inc. (HPI) and residential builder SM Development Corp. (SMDC) in exchange for shares in SM Prime.

SMDC shareholders will receive 0.472 SM Prime share for each SMDC stock while HPI stockholders will get 0.135 SM Prime share for every HPI stock. Both SMDC and HPI will exit the local bourse.

Next is the merger of SM Land with SM Prime, which will be the surviving entity.

SM Prime will also acquire specific real estate companies and assets currently held by SMIC in exchange for new shares in SM Prime.

Specifically, it will acquire assets like the SM Mall of Asia complex, Pico de Loro, and SM Hotels and Conventions Corp.

“The consolidation is expected to be completed by end of 2013, subject to regulatory and stockholder approvals,” SMIC said.

The transformed SM Prime will have P284 billion in current assets from P148 billion, revenues of P58.4 billion from P30.7 billion, net income of P17 billion from P10.9 billion and a total landbank to 920 hectares from 110 hectares.

SM Prime chief finance officer Jeffrey Lim said the merger will allow the company to optimize its existing landbank, increase the flexibility to conduct large developments, and heigthen the coordination of all property units.

SM Prime’s market capitalization will hit at least $14 billion, Lim said. It will be higher than the $10.9-billion market capitalization of property giant Ayala Land Inc. and is comparable to any big property company in Southeast Asia, said SMIC chief finance officer Jose Sio.

After the consolidation, the main operating units of SM Prime will focus on malls, residential, commercial, hospitality and leisure, and lifestyle cities that will focus on large mixed-use developments.

Meanwhile, the consolidation of Belle Corp., which partnered with Macau’s Melco Crown Ltd. for a $1.3-billion integrated casino complex along Manila Bay, is still under study given its orientation to gaming.

“Belle caters to a different investor base because of the potential gaming development they have,” Lim said.

From the first Shoemart store in 1958, the SM Group of the country’s richest man Henry Sy Sr., has expanded into banking, property and malls.