December 02, 2014

ALI interested in Paranaque City land reclamation deal Swiss Challenge

BusinessWorld today reported that Ayala Land Inc (ALI) has expressed interest to challenge an unsolicited proposal by the SM Group for a 300-hectare land reclamation project in Paranaque City. The project is estimated to cost P50.2b. By submitting its letter of interest last 28 Nov, ALI tried to beat a 1 Dec 2014 deadline set by the local government's Public Private Partnership selection committee for interested parties to submit comparative proposals.

However, ALI cited issues with the entire process which it claimed was not in conjunction with the guidelines set by the National Economic and Development Authority and the rules of the Philippine Reclamation Authority. It also asked for a longer period to come up with a more meaningful proposal to challenge the offer of the SM group. Recall that ALI also raised the same issues vs. a similar proposal by the SM Group for a land reclamation project in Pasay City.

Our take: It remains to be seen if the Paranaque City government will declare ALI's bid as compliant to its requirement for a competitive challenge to the SM Group proposal. At any rate, the land reclamation projects in Pasay and Paranaque cities can form a contiguous 600 hectares and are estimated to cost at least P100b over several years.

The projects will bode well for the long-term prospects and will provide a big boost to the land banking efforts of the prospective winner given the size of the property which will benefit from ongoing development and infrastructure build-up in the area. However, it remains to be seen how the prospective winner will finance the required investments.

Both SM Prime Holdings Inc (the property arm of the SM Group) and ALI have significant room to lever up but they are also likely to issue more shares to partly finance the project. ALI has about 1b in carved-out common shares while SMPH has about 4.3b in remaining treasury shares which they can sell to raise funds – WealthSec