The deal: Prime Infrastructure Capital [link], the private infrastructure holding company of Enrique Razon, has filed an application with the SEC to conduct an IPO to sell just over 1.9 billion common shares for a maximum price of P14.60/share, to raise P28.2 billion. The offer includes 1,755,780,000 primary common shares, plus 175,578,000 primary over-allotment shares. The proceeds of the sale of the over-allotment shares will be used by the stabilization agent to operate the stabilization fund. Assuming full exercise of the over-allotment option, the IPO will transfer 22% of the company into public hands.
The ticker symbol: The prospectus says that the company’s ticker symbol will be “PFR”, which seems like an odd choice considering the initials of the company’s name are “PIC”. I get that their range of choices is limited by the existence of Prime Media Holdings [PRIM 3.11 6.51%], and SM Prime [SMPH 36.45 1.22%], both of which incorporate some form of “PRIME” into their legal name, and in the case of PRIM, leaves the full “PRIME” available for use but at the risk of potential confusion. I agree that “PIC” is probably not representative of Prime Infra’s business, but neither does “PFR”. “PFR” is also pretty close to “PFRS”, which is a super-common term that we see all the time in financial statements because it stands for “Philippine Financial Reporting Standards”. My suggestion (which always comes free of charge) is to go with “PNFRA”, which is at least like a vanity license plate style reference to the company’s common name, “Prime Infra”. But I’ll use PFR until the Razons can see the light!
The bankers: CLSA Limited is the sole global coordinator, with BPI Capital [BPI 92.60 0.96%] and BDO Capital [BDO 123.00 0.16%] acting as joint local underwriters. The prospectus did not name the stabilization agent, but it’s not uncommon for this to get updated in the final version of the prospectus.
The business: PFR is Enrique Razon’s private holding company. PFR is to Enrique Razon as Udenna is to Dennis Uy, except that, here, Enrique Razon plans to actually sell a stake in his private holdco to the general public, and open his books to us as part of that process. PFR operates four major segments: water, energy, construction, and waste. While all four segments are operational, the two most interesting are the water and energy segments. The water division is dominated by Trident Water, which Barkadans will remember from the Tubigserye back in 2019/2020, where Mr. Razon used Trident Water as the acquiring entity when he swooped in to scoop up a controlling interest in Manila Water [MWC 16.40 1.56%] from the Ayalas. The energy division is no less ambitious, and is involved in several hydro and solar projects, including large joint ventures with Solar Philippines (the parent company of Solar Philippines NEC [SPNEC 1.56 0.64%]), which will become a part of SPNEC after the share-swap is completed.
Primary/secondary split: “Primary” shares are new shares in PFR that are sold by PFR, and that money raised is for PFR’s use. “Secondary” shares are existing shares sold by private shareholders, and that money raised is for those private shareholders to use, not the company. In this case, the entire deal is primary -- even the over-allotment shares are primary, which is very unusual. This means that PFR will gain the use of over P28.2 billion. That leaves about P27.6 billion after fees are deducted for PFR to use to grow its businesses. That’s pretty interesting.
Use of proceeds: PFR plans to sink P23 billion into its energy business. That’s 83% of the net proceeds, so that’s what this whole IPO thing is “about”. Of that P23 billion, P10.5 billion will be spent in 2022, P9.9 billion will be spent in 2023, and P2.6 billion will be spent in 2024. This is a very front-loaded deal, which means that investors are likely to get the benefit of their investment earlier.
What are the risks? PFR self-identifies that its greatest risk is the general economic well-being of the Philippines. PFR says that its growth is driven by the growth of the Philippine economy, and that some of its contracts (especially in the water segment) may be exposed to inflation in a way that PFR will not be in a position to be made completely whole under the agreements as they stand. PFR also said that all of its businesses exist within heavily regulated industries, and may rely on certain tax or other benefits that are, as inferred by this section, subject to the Government’s changing attitudes and initiatives.
MB BOTTOM-LINE
There is no mistaking the size and importance of this IPO.
Based on the deal’s current size and price, if it went through as it is today, PFR would be the 2nd largest IPO in PSE history.
Nothing like the behemoth that was the Monde Nissin [MONDE 13.44 1.97%] IPO, which raised over P48 billion, but every-so-slightly larger than the previous heavyweight champ, Robinsons Retail Holdings [RRHI 47.00 1.40%], which raised P28 billion.
As I mentioned in the “use of proceeds” section, this IPO is clearly about energy.
The vast majority of the proceeds will be put into this business segment, with over P20 billion scheduled to be pumped into the energy segment by the end of 2023.
For the solar projects that it will be developing with SPNEC and others, PFR will be able to begin commercial operations pretty quickly (by energy standards) and give the benefit of those operating facilities to shareholders. It’s interesting that 100% of this raise is primary.
It’s interesting that the most aggressive (and successful) oligarch over the past two years is bringing his personal holdco to market.
How does PFR compare to the other infra holdcos on the market right now? How will the market look in four months’ time when this thing actually lists?
These are all questions that we can answer over the coming days, weeks, and months, but that we will need to address to get a better understanding of the potential opportunity that this IPO presents.
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