GMA Network defers IPO to early 2007

The much-awaited initial public offering (IPO) of broadcasting industry leader GMA Network Inc. has been deferred to early next year, highly placed sources told The STAR.

According to the sources, the owners of the television and radio network feel that early next year would be a better year for the company to offer its shares to the public.

GMA Network was earlier planning to sell 20 to 30 percent of its outstanding shares in an IPO slated this year. At an estimated market value of P30 billion, the company was hoping to  generate about P6 billion from this planned public offering.

In preparation for its IPO, the company earlier increased its authorized capital stock from P2 billion to P5 billion. The net increase has been subscribed and fully paid for through stock dividends by Duavit-owned Group Management and Development Inc., Gozon-owned FLG Management and Development Inc., M.A. Jimenez Enterprises, Television International Corp., Gozon Development Corp. and Gozon Foundation Inc.

GMA posted P2 billion in  net income in 2005, up 34 percent from the previous year’s P1.5 billion. The company is forecasting a net profit of more than P2 billion this year as the company starts to generate revenues from a more diversified business portfolio.

The company was likewise proposing to form a special purpose vehicle through a new company (Newco) that will own common shares of the company and later issue Philippine Deposit Receipts (PDRs) as part of its IPO and listing of shares at the Philippine Stock Exchange.

In a concept paper submitted earlier this year to the Securities and Exchange Commission (SEC), GMA said the Newco will acquire the new shares to be issued by the network as well as the existing shares of the Duavit, the Gozon and Jimenez groups, the original shareholders of the company. The Duavits and Jimenezes both own 35 percent of GMA while the remaining 30 percent is held by the Gozons.

As the Newco is incorporated, it will later create and issue PDRs over the shares held by it. The PDRs will be offered for sale to investors under the offer. For as long as the PDRs are not exercised, GMA said the Newco will remain the owner of the shares underlying the PDRs and shall retain and exercise full voting rights over such shares.

According to the network, since the Newco is owned by the shareholder groups, all shares held by it in GMA, including those over which PDRs are to be created, will remain wholly-owned by Philippine citizens in compliance with the constitutional requirement.

The creation of the Newco comes in line with the network’s plans to allow foreigners to participate in the company’s public offering. Foreign entities are not allowed to acquire shares of stock in a Philippine mass media company but according to GMA, the PDRs does not fall under the constitution’s restrictions.

Holders of the PDRs shall enjoy only the economic benefits of the shares underlying the PDRs without voting and other ownership rights. Under the proposed PDRs, holders of PDRs will have the right to exchange their PDRs with common shares by payment of an exercise price and submission of a written exercise notice under terms and conditions contained in the PDR instruments.

It is, however, further provided that if the holder is a non-Philippine citizen, he may exercise the right granted under the PDR, and in such case, Newco is obligated to sell the underlying shares and deliver the proceeds from such sale to the holder, or the said holder may assign his PDR to a Philippine holder who will have the right to exchange the PDRs for common shares.

"The PDRs will be a critical tool for generating international institutional investor interest in GMA, achieving an optimal valuation and ensuring liquidity for the stock in the aftermarket. A similar approach has been successfully used by ABS-CBN, a competitor of GMA, in their public shareholding structure," GMA told the SEC.