December 14, 2014

SM Prime bags Parañaque reclamation deal

BusinessWorld today reported that SM Prime Holdings Inc was awarded by the Parañaque City Public-Private Partnership Program (PPP) selection committee the contract to reclaim and develop a 300-hectare area along Manila bay fronting the city. This will be the second major reclamation project won by the company. Earlier, it was awarded a similar contract involving another 300 hectares by the Pasay City government. Both projects are estimated to cost around P100b.

Our take: SM Prime plans to merge the two projects in order to come up with a contiguous 600-hectare property. This should further enhance the company’s prospects given the strategic location of the property. The proposed projects should benefit from the ongoing commercial development and infrastructure projects within the area.

To finance the projects, SMPH can still the remaining 4.33b worth of treasury shares which are worth P71.3b at current prices but this can result in a 15% share dilution if fully issued. The company has also said it plans to tap the debt market and will likely seek foreign partners on the project level to defray the development costs.

However, it may take a while before SMPH can proceed with the reclamation projects. Its proposals need to hurdle final approval by the Philippine Reclamation Authority (PRA) and the National Economic and Development Authority given legal challenges being raised by interested parties.

Earlier, Ayala Land Inc (ALI) raised issues about the manner in which the Swiss challenge was conducted which the company claimed runs counter to guidelines set by the PPP. An unlisted private consortium R1 Consortium also last week warned the Parañaque city government that it had prior right to all future reclamation projects near its Aseana City property based on a 1991 agreement with the Public Estates Authority, the precursor of the PRA. – WealthSec