November 07, 2014

GIC of Singapore takes a stake in EMP

In a press statement, Emperador Inc (EMP) today announced that the private equity arm of GIC of Singapore will invest P17.6b in EMP equity and equity-linked securities at P11/sh. The investments will comprise of an initial P12.32b acquisition of 1.12b common shares of EMP (equivalent to 6.95% of the expanded outstanding shares), and a P5.28b investment in equity-linked securities which has a term of up to seven years and convertible into 480m common shares (or an additional 2,69% stake) if exercised.

Furthermore, GIC was given another option to invest P4.4b over a 13-month period to acquire additional 400m common shares at P11/sh. If all the options are exercised, GIC will end up with an 11.76% stake. The acquisition price represents just a 3.2% premium to yesterday’s closing price of EMP.

Our take: The likelihood of an equity placement has served as an overhang n EMP shares in light of the need to finance the P31b acquisition of Whyte and Mackay and after it a secured a £210m (or P15.17b) loan that will fall due in a year. While the GIC investments may result in share dilution, this will finally address a key market concern.

We find it positive that the EMP has attracted GIC which will likely hold the shares as a long-term investment. The next challenge for EMP is to realize synergies from the acquisition and spur earnings growth to compensate for the share dilution. In the meantime, EMP is trading at 23.1x 2015 consensus earnings forecast. – WealthSec