April 08, 2014

ALI okays 1b carved-out shares for future issuance

In a disclosure to the Exchange, Ayala Land Inc (ALI, Buy) yesterday said its board approved the reservation of 1b “carved-out” common shares for future issuance to finance any potential investments, acquisitions and debt payment. Such shares are exempted from pre-emptive rights. However, the new company president was quoted by the Philippine Daily Inquirer as saying ALI has no plans of issuing the shares within the next two years.

For this year, the company plans to issue about P15b worth of 11-year bonds with the first P8b trance to be issued this May. ALI is also looking to issue another P3b worth of its Homestarter bonds while its affiliate Cebu Holdings is planning to issue P5b worth of 7-year bonds.

The new borrowings is meant to partly finance P70b in planned consolidated capex this year. The company is also looking for new forays abroad, including a US$30m jv with a partner in Myanmar for a residential project (in which ALI’s share will be US$10m) and a prospective project in Vietnam.

Our take: While the market generally frowns on equity issuances due to the resulting share dilution, ALI has so far more than compensated for the 7.5% share dilution that resulted from the issuance of 1b shares over the past two years by registering average earnings growth of about 30%.

Also, the proceeds from those equity placements were used to partly finance the acquisition of the FTI property which the company is now developing into a mixed-used township project. If issued, we estimate the new 1b carved-shares to result in a 7% share dilution. In the meantime, we view positively the company’s preference for bond issuance to finance its capex as this would lessen the immediate need for any equity issuances. – WealthSec