8990 Holdings wants to raise P26.6 B in “re-IPO” FOO
8990 Holdings [HOUSE 11.88 2.59%] applied to the Securities and Exchange Commission (SEC) to conduct a follow-on offering (FOO) of up to 1.4 billion common shares for up to P18.99/share, to raise nearly P26.6 billion for the selling shareholders.
The entire FOO will be secondary, meaning that all of the shares sold will be from existing shareholders, like HOUSE’s top common shareholder, iHoldings Inc, which will sell up to 450 million shares to the public through the FOO.
After the FOO completes, iHoldings will use the money raised to purchase 450 million primary common shares from HOUSE.
The FOO is being underwritten by a combo of Chinabank [CHIB 25.50 0.20%] and PNB Capital. Out of the P26.6 billion to be raised by this transaction, only about P8.5 billion will actually flow to HOUSE that the company can use to grow its business.
The rest will go to the private pockets of the other selling shareholders, TPG Rafter Holdings, Ltd., and Pasir Salak Investments Ltd.
In a press release, HOUSE said that it considers this FOO to be a “re-IPO” as it is an opportunity for the company to introduce itself to new international and domestic investors. HOUSE said the FOO would also increase liquidity by expanding the public float.
MB BOTTOM-LINE
This kind of transaction can be confusing at first-glance. Why would iHoldings sell 450 million shares, and then buy the same number of shares back at the exact same price, essentially on the same day?
If we zoom out, we can see that this is just a way for iHoldings (HOUSE’s lead shareholder) to inject more money into HOUSE without putting more in out-of-pocket. Say, just for simplicity’s sake, that 5 years ago, iHoldings gave HOUSE [20.18 billion for the 2.18 billion common shares that it currently owns. In the 5 years that have passed, HOUSE has used that money to pay expenses, buy land, develop projects, and basically conduct business.
That cash is gone; it’s been lost to expenses, or converted into assets and retained earnings, etc. What if iHoldings wanted to inject another P8.5 billion into HOUSE to start some new project or buy a new piece of land?
It could either head to the bank and get a loan, or convert some other holdings to cash and then buy primary shares from HOUSE, but both of these methods require iHoldings to push new money into HOUSE.
This transaction allows iHoldings to sell about 20% of its holdings to the public (convert the shares to cash), and then use all of that money to buy primary shares from HOUSE.
iHoldings goes from owning 39.56% of 5.39 billion outstanding shares, to owning 37.32% of 5.84 billion outstanding shares, and HOUSE gets a fresh injection of P8.5 billion in cash.
And if we forget all the fees and expenses extracted by the bankers through the process, iHoldings was able to accomplish this without spending any of its own money, while also allowing a couple of other significant shareholders to cash-in their holdings at the same time.
Sure, the placeholder price of the FOO represents a 60% premium over Friday’s closing price of P11.88/share, but the company will have ample time to test the market behind the scenes and right-size the price to meet the demand that they find.
This is only the application to the SEC, so it will be a little while yet before this goes on sale.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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