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Stock Commentary

Quick takes from around the market

Merkado Barkada
Quick takes from around the market
With as much bond-selling as we’ve seen, I’m surprised that we haven’t seen more. Every central bank is telegraphing that rates are going up.
Merkado Barkada

Globe [GLO 2178.00 0.18%] [link] signs another sale-leaseback agreement, this time with Philtower, to sell 1,350 towers for P20 billion. This batch is in addition to the two other tower tranches that GLO is in the process of selling to MIESCOR Infrastructure Development Corp (2,180 towers; P26 billion) and Frontier Tower Associates Philippines (3,529 towers; P45 billion). This announcement is actually related to the third portfolio that GLO listed “in advanced discussion” in its original August disclosure. Once everything is fully negotiated and closed, these deals will raise over P90 billion in cash that GLO can use for capex and strategic debt reduction.

MB Quick Take: These are fantastic transactions for GLO shareholders. GLO gains access to P90 billion (which will be less after taxes and charges), which it can use to fund network expansion and pay down some debt. It also pushes the upkeep and administration of these sites off GLO’s books. It’s no small thing to monitor and maintain 7,000 sites over a huge geographical area, and now GLO can focus on the parts of its business that really bring value to shareholders. GLO still has access to these sites. Functionally, nothing has changed. They’re leased back to GLO for 15 years. Operationally, GLO’s hoping that there will be way fewer headaches. Financially, they’re swimming in a fresh injection of cash.
 

Metrobank [MBT 48.55 6.36%] [link] board approved issuance of 1.5 year bonds to raise P10 billion. MBT didn’t provide any guidance on timing (subject, of course, to “market conditions”), but did say that the proceeds would be used to “refinance maturing issuances and diversify the Bank's PHP funding sources”.

MB Quick Take: With as much bond-selling as we’ve seen, I’m surprised that we haven’t seen more. Every central bank is telegraphing that rates are going up. Now. Also later. For a while. If you think rates are going to go up over the next 1-2 years, it makes sense to me to sell debt now and lock it in at a lower rate. Provided the company has something to do with that debt. Bonds aren’t like a line of credit; the issuing company is obliged to pay interest regardless of whether they put the proceeds into capex or just leave it to rot in a savings account.
 

Aboitiz Equity Ventures [AEV 55.05 4.18%] [link] applied to the SEC to sell up to P12 billion worth of bonds, with P7.45 billion coming from the last tranche of its P30 billion shelf-registration from 2019, and P4.55 billion from its P30 billion shelf-registration from 2022. AEV said that it expects to sell the bonds in Q4, and then to push the proceeds down into Aboitiz InfraCapital, Inc. to help fund its P25 billion purchase of the GMR-Megawide Cebu Airport Corporation from Megawide [MWIDE 4.08 5.77%] and its India-based partner, GMR.

MB Quick Take: Bank bond sales are kind of boring, but I’m a huge fan of these kinds of transactions where you can draw a straight line from the borrowing right through to some aggressive acquisition that will grow the future fortunes of the company. It’s easy for San Miguel’s [SMC 97.50 0.15%] bond- and pref-spam to cause an EDGE-reader’s eyes to cross, since it’s mostly just kicking the debt can down the road and refinancing as obligations come due. But this AEV transaction is borrowing money to buy a business. That’s relatable. Bonds aren’t always the most interesting, but this is about as interesting as it gets (unless someone defaults or allows the bonds to step-up for some reason).
 

Bank of Commerce [BNCOM 9.11] [link] has about 60% of its shares coming out of mandatory lockup today. The shares are owned by its parent company, San Miguel [SMC 97.50 0.15%], through two of SMC’s subsidiaries, San Miguel Corporation Retirement Plan and San Miguel Properties. BNCOM released a statement saying that both of those companies “intend to maintain their ownership”.

MB Quick Take: BNCOM has had a rocky road since its IPO. This kind of communication can help provide shareholders with some confidence in the price stability of the stock when a large portion of shares are coming out of lock-up, as is happening here. Many retail traders are now coming to the PSE with crypto experience, and are therefore (unfortunately) experienced in the look and feel of a classic rug-pull. Shares are locked-up precisely to avoid a rug-pull, so when they come out of lock-up, naturally traders are on high-alert. It makes a lot of sense for a parent company to make this kind of disclosure, especially if there really isn’t any desire or intention to sell any shares when the lock-up ends.
 

Converge [CNVRG 15.00 0.92%] [link] was forced by the PSE to clarify points about its buy-back program. CNVRG said that it would fund the program using unrestricted retained earnings, and that it had sufficient levels to conduct the buy-back program without adverse effect to CNVRG’s “prospective and existing projects and/or investments”. CNVRG also said that the buy-back program has already started (officially on September 23), and that it estimates that it will buy-back approximately 1.36% of the company’s outstanding shares.

MB Quick Take: I’m not sure what the exchange was hoping to clarify. The buy-back program is actually rather modest (just P1.5 billion in funding). A quick check of CNVRG’s Q2 balance sheet shows P14.1 billion in cash and cash equivalents, with over P18 billion in retained earnings. CNVRG also has a free float of 30.91%, which is well above the PSE’s minimum threshold of 20%; there’s no world where a P1.5 billion buy-back program gets CNVRG into any trouble from a public ownership perspective.
 

MEDCO Holdings [MED 0.21 23.64%] [link] shares tanked after MED’s owner, Bonham Strand Investments Ltd. (Bonham), announced its intention to conduct a tender offer for MED shares, at a price of P0.05/share. Bonham acquired MED in 2018, when MED pulled some authorized capital stock shenanigans and sold 2.2 billion common shares at P0.05/share to Bonham (equivalent to 69.67% of MED’s outstanding stock) in exchange for Bonham assuming P110 million of MED’s debt. The public notice (published in the Business Mirror) said that more information will be made available when the tender offer report is published to EDGE, but did not provide any guidance on timing.

MB Quick Take: I’m not sure how Bonham was able to take four years to slow-walk this tender offer to the public, but here we are. A tender offer is just a public invitation to sell shares to a person or entity at a set price. In this case, the PSE’s rules forced Bonham to offer to buy any shares of MED not owned by Bonham for the same price that it (Bonham) paid for its shares (P0.05/share). It’s a measure that is supposed to act as a protection to minority shareholders when there is a change in control of a company, to allow those shareholders to exit at the same price the buyer paid to acquire all of its shares. I’m not sure how effective that rule is if Bonham is able to wait as long as it did to make the offer. Sure, it looks ridiculous to offer P0.05/share for shares that were trading at P0.28/share before the announcement, but for Bonham, it allows the company to satisfy the requirement without (maybe) having to pay any additional money to minority holders looking to exit.

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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.

ABOITIZ EQUITY VENTURES INC

BANK OF COMMERCE

CONVERGE ICT SOLUTIONS INC.

GLOBE TELECOM INC.

METROBANK

PHILIPPINE STOCK EXCHANGE

SAN MIGUEL CORP.

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