Filinvest clarifies conversion price of P1.2-B bonds

Property developer Filinvest Land Inc. (FLI) said the lower-than-market conversion price it has pegged on the recent P1.2 billion convertible bond issue to a Singaporean investor was fairly valued — contrary to the market’s initial reaction — since it was based on a predetermined formula.

In a briefing, FLI president Joseph Yap said the basis for the conversion price was clearly justified given the stock market conditions at the time of negotiations.

Last Feb. 5, FLI disclosed to the Philippine Stock Exchange that it had issued P1.2 billion worth of convertible bonds to Reco Grandhomes Pte. Ltd, a company managed by GIC Real Estate Pte. Ltd. of Singapore.

But the announcement surprised market players since aside from having the option of converting into common stocks at any time within five years, the conversion price was pegged between P1.70 to P1.85 per share, way below the stock’s prevailing market price of P2.38.

As a result, investors heavily dumped FLI shares, leading even Exchange officials to call for an investigation on the rules on proper and timely disclosures.

But Yap said the negotiations with Reco started in mid-December 2001 when the stock market was still in a slump. With an original target closing date of Jan. 15, 2002, the parties then projected that share prices would hover at P1.72, the average for the last two trading weeks of December.

"Confusion surrounding the conversion price arose when the market experienced an unexpected rise in the last two weeks of January which could not have been anticipated," Yap said.

He added the company made the disclosure within the required time frame under PSE regulations. While pricing negotiations were held in December, the transactions could not be considered final until due diligence, legal documentation and other matters were agreed upon and that any premature disclosure may have derailed the deal.

"The company exercised its best judgement in weighing which action would be more beneficial to the company and its share prices. The overriding concern is to insure the inflow of funds from the bonds in order to protect the company’s credit standing and financial condition," Yap said.

FLI said the proceeds of the convertible bonds were used to partly pay and retire $100 million in company-guaranteed convertible bonds issued in 1996 by its wholly-owned foreign subsidiary FLI Capital (Cayman Islands) Ltd. and fell due on the first week of February 2002.

As a result, FLI said its has completely eliminated its foreign currency exposure and significantly reduced its total borrowings from P8 billion to P3.5 billion. – Conrado Diaz Jr.