ABN-Amro, BDO prepare biggest IPO since 1997

ABN-Amro Rothschild and BDO Capital & Investment Corp. are cooking up the biggest initial public offering in the local bourse since the 1997 Asian financial crisis, targeting not only local investors but foreign investors as well.

While the identity of the company slated to go public in the latter part of the year is yet to be revealed, stock market sources said it could be a member of the SM Group of Companies of shopping mall magnate Henry Sy. The group plans to raise between P5 billion and P6 billion through a public offering tentatively scheduled in December this year.

ABN-Amro and BDO, the investment house arm of the SM Group, have been tapped to lead underwrite the issue. They are now drawing up the guidelines on the proposed offer structure designed to encourage strong participation by both international and local investors.

In a presentation to securities regulators, BDO and ABN-Amro said given the expected size of and significant appetite for the IPO a large proportion of the issue will be marketed internationally.

This offer will be the Philippine’s first significant international IPO post the Asian crisis and provides an opportunity to demonstrate the innovation or attractiveness of the Philippine capital markets to global investors.

To encourage foreign investments and enable a successful IPO of this size, the offering has been structured to integrate Philippine practice with compatible global market practices.

The proposed offer structure is designed to provide Philippine issuers with the flexibility to respond to volatile market conditions and thereby enhance the ability of international and domestic investors to participate in Philippine capital market offerings.

They plan to conduct a simultaneous marketing and subscription period for institutional (both international and domestic) and retail (domestic) investor to maximize demand by enabling the competition for the shares between all investor groups.

BDO and ABN-Amro have sought exemption from the requirement to disclose profit forecasts in the prospectus. They said that while the profit forecast requirement provides a useful tool for Philippine investors to assess the value of the investment, the inclusion of which in the local or international prospectus would expose the issuer to very substantial risk of litigation should the actual financial results differ materially from the forecast, given the nature of certain international markets.

"In order to reduce the likelihood of litigation from international investors, there is a risk that issuers will be overly conservative in making the required forecast disclosure. This would be contrary to the spirit of the requirement and would not provide meaningful guidance to investors as to the true value of the company," they said.

They stressed the issuer "is not a start-up company and that it has a clear trading track record that investors can use to form a baseline understanding of the company’s value."

Stockmarket sources said the issuer could be Shoemart Inc., which is in charge of the Sy family’s department store and supermarket operations. Following the successful debut of Banco De Oro Universal Bank shares at the PSE in April, the Sy family said they were looking at the possible listing of Shoemart.

Shoemart was spurred to go public after Congress opened up the local retail industry to foreign competition a few years ago after nearly half a century of limiting the sector to Filipinos.

The Retail Trade Law allowed foreigners to put up wholly-owned stores, enter into joint ventures with local partners, and acquire shares in an established unit.

Shoemart is apparently looking to raise cash from both the local and foreign equity investors to beef up operations, to keep up with the slow but steady influx of foreign retail giants into the country.

Sy opened the first SM store in 1958 and has been the prime mover in the SM Group’s diversification into the commercial center, financial, real estate, tourism and entertainment industries.

In terms of gross revenues, Shoemart is among the top 50 corporations in the Philippines and the market leader in the retail trade business. The company posted a net income of P4.24 billion in 2000, 91.9 percent higher than the 1999 figure. Revenues, on the other hand, amounted to P15.22 billion or an increase of 15.1 percent from the previous level.

As of end-December 2000, assets of Shoemart Inc. stood at P16.12 billion, up by 18.1 percent over the year earlier. Liabilities went down by 17.6 percent to P5.28 billion.

To date, four Sy companies are listed in the PSE-flagship firm SM Prime Holdings, Inc. (SMPH), real estate arm SM Development Corp. (SMDC), and cement company Fortune Cement Corp.

SMPH, which handles the mall development business, has been included in the short list of blue-chip stocks in the Philippine Stock Exchange owing to the consistent strong performance of the group’s shopping malls all over the country.

Shoemart has a 51.09-percent interest in SMPH while SM Investments Corp., another Sy-owned company, owns 23.15 percent.

Analysts said it’s about time Shoemart opened up its ownership to the public. "The IPO will enable the company to access cheap capital and prepare for the entry of more foreign retail giants," an analyst said.

Shoemart continues to be the country’s largest mall operator with 12 malls occupying a total gross floor area of 1.8 million square meters located across the country.

The group’s objective is to put up an average of two supermalls every year for the next five years.

Also part of the company’s expansion include largely untapped provincial areas such as Cavite, Laguna, Quezon, Bulacan, Pangasinan, Baguio and other areas in Mindanao as encouraging results of their recent provincial malls have driven SM Prime to acquire land and prime properties in these areas.