Converge’s offer period starts this week

MANILA, Philippines — Converge ICT, the IPO-bound fixed-broadband operator that currently provides fiber-optic broadband services in Luzon, will commence its offer period for the local market this week after global investors gobbled up its overseas offer.

It has increased the maximum subscription amount for local small investors to P1 million per investor, Converge said in a regulatory filing.

Cornerstone investors meanwhile include Genesis Investment Management, Macquarie Funds Management Hong Kong Ltd., Magna New Frontiers Fund, and Thornburg Investment Management.

Converge’s registration statement covers 480.8 million shares for primary offering, 1.024 billion shares for secondary offering and an over-allotment option covering 225.8 million shares.

The company has set a final offer price of P16.8 per share, lower than the registration statement price of P24 billion, to raise up to P29 billion in a deal touted as the largest IPO in the market after Robinsons Retail Holdings P28 billion IPO in 2013.

The final offer price of P16.8 is at a premium compared to peers, according to COL Financial.

“At its offer price of P16.8 per share, Converge will be trading at a 15.6 times 2020 estimate EBITDA, which is a significant premium compared to the 5.4 times median multiple of its regional peers. Note that this is assuming the company can sustain its first half top-line growth and first half EBITDA margin of 51.1 percent throughout the year. Similarly, the company’s 2020 estimate P/E of 43.3 times is notably higher than the 16.8 times median P/E of its comparables,” it said.

Furthermore, it also said that for Converge’s EBITDA multiple to be at par with its regional peers, it will need to record an EBITDA of P22.4 billion, which is three times higher than its full year estimated EBITDA for 2020.

COL Financial said the under-penetrated residential fixed broadband market presents opportunities for Converge.

“According to Media Partners Asia’s analysis, the current residential market size of 3.5 million subscribers only represents 18.9 percent of the total addressable market of around 18.5 million households in the Philippines. MPA said it expects the Philippines to experience a significant growth in fixed broadband penetration due to higher connectivity needs coupled with the rapid fixed network rollout of incumbent operators. In addition, fiber penetration is expected to rise as fiber service replaces outdated digital subscriber line (DSL) and HFC technology in the near future. DSL and HFC infrastructure cannot satisfy Filipinos’ need for higher speeds as digitalization of day-to-day activities has become more prevalent in the post-pandemic world,” COL Financial said.

As of end-June , Converge’s fixed broadband market share stood at 19.1 percent, mainly due to the rapid pace of subscriber additions over the past few years.

The company recorded 732,000 residential fixed subscribers in the first half of 2020, higher than the 530,000 base it had as of end 2019, largely due to the significant increase in subscriber additions following the lockdown.

The pace of growth has been maintained with around 70,000 monthly new subscribers in August and September, which is much higher than the pre-COVID monthly net additions of around 20,000 to 30,000 subscribers, COL Financial also said.

Moving forward, Converge aims to have one million residential subscribers by the end of the year. This, COL Financial said, “should be achievable given current subscriber additions exceeding 70,000 per month.”

According to market sources, the transaction was very well received by both international and domestic institutional investors with over 80 percent of the IPO allocated to fundamental investors, consisting of global emerging market long-only funds and sovereign wealth funds.