Monde Nissin to use IPO proceeds to pay debt

The snack-maker, which IPO’d on June 1 of this year, disclosed that its board had approved a change in the way that MONDE would use the IPO proceeds that would see the majority of the proceeds used to pay down debt. Before the change, Monde Nissin [MONDE 16.92 0.83%] had planned to use P26.5 billion of the P46.3 billion in net proceeds to fund capex (57%), with the remainder going to pay down debt in various ways. Now, MONDE wants to put a much larger chunk of the proceeds to pay off debt.

The exact wording of the disclosure and the press release is not crystal clear, but it appears as though MONDE has decided to divert P15.6 billion of the P26.5 billion that was originally set aside for capex and use that now to pay down debt. MONDE said that it would still undertake all of the capex plans that it outlined in the prospectus, but that the capex would now be funded organically through operating cash flow and supplemented by existing lines of credit. MONDE also said that using the IPO proceeds in this way would generate an additional P700m in interest savings.

MB BOTTOM-LINE

I saw a few people react as though MONDE had just pulled an IPO “bait and switch” by selling inventors a sweet story of topline growth through capex spending, only to then rudely alter those plans to use the equity to do boring bottom-line things like pay down debt. That’s not the case here. MONDE has not changed its capex plans, it’s only changed what it plans to immediately do with the huge pile of money it has sitting in the bank after the IPO. It’s just figured out that having that huge pile of cash just sitting in the bank waiting to pay for capex plans over the next 3 years isn’t the best use of the money, especially when it still has outstanding loans that are just sitting there gathering interest.

The opportunity cost of holding the money aside and waiting for capex spending opportunities was P700m, which is almost 2% of the value of the entire IPO. If the company can pay down the debt AND still do its capex plans, investors should look at this as a fantastic move that will still pump the topline while giving the bottomline a nice little bump as well. The only thing we don’t know is whether MONDE plans to divert the entirety of the P26.5 billion set aside for capex, or if it will just divert P15.6 billion. In the end, though, it doesn’t really matter. This is just competent money management in action.

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