November 27, 2013

JGS sets top-up share placement

BusinessWorld, citing an IFR magazine article, reported that JG Summit (JGS, Buy) has launched a $201m-$206m share placement with an option that could bring the deal size to as much as $308m. JGS is offering 220m treasury and top-up shares at a pricing range of P40-41 apiece. There is also an option to increase the deal size by another 110m shares, raising the possible gross proceeds to P13.5 billion.

Our take: The capital raising is part of the planned 70:30 debt/equity mix to finance the group’s acquisition of a 27.1% stake in Manila Electric Co (MER, Buy). Recall that JGS previously raised P13b via its sale of 113m URC shares and is now pursuing a debt issuance worth P50b. This brings the balance to P10b to cover for the remaining 14% of the 30% equity financing.

We estimate the share dilution arising from the planned equity issuance to be between 3.3% - 4.9% assuming that it will be priced at P40 (lower end of the price range). We believe that this is reasonable given the >25% RoE that MER, a dominant utility, is generating.

Meanwhile, the share price of JGS has fallen near the indicative price range, suggesting a limited downside and an opportunity to Buy the sales at a more attractive valuation. - WealthSec