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AREIT holders haunted by the ghost of CHP's past

AREIT was down 11% as of end of trading day on Friday August 14, 2020 to closed at 24.10 Pesos from its debut price of 27.00 Pesos.

The event refreshes the memories of the Cemex Holdings Philippines, Inc. (CHP) public offering in 2016. From 10.75 Pesos IPO price, over the years CHP gradually declined and even reached a low of 0.86 Pesos.

We tried to review the two (AREIT and CHP) public offerings and see where they are alike and where they differ.

In the AREIT offering 90.5% of the shares offered to the public were secondary shares owned by the Ayala Land, Inc. (ALI) and only 9.5% were primary shares of AREIT. The AREIT offers shares constituted 49% of the total outstanding and issued shares of AREIT. This structure is different from that of CHP.

In CHP the offer shares were all primary shares constituting 45% of the total outstanding and issued shares of CHP.

Despite the difference in the public offering structure, it seems that their share price are trending the same.

How are they (AREIT and CHP) same? Well, both (AREIT and CHP) offerings were oversubscribed.

In a July 4, 2016 Inquirer.net report titled “Cemex P25-B IPO starts” it was reported that CHP IPO was oversubscribed and a portion of the report is quoted as follow:

“The deal was oversubscribed even without orders from trading participants and local investors,” said Eduardo Francisco, president of BDO Capital & Investment Corp., the offering’s lead underwriter. As such, Francisco said the oversubscription option would be exercised.”

Same with CHP, it was also reported that AREIT IPO was oversubscribed. It was reported by Inquirer.net on August 6, 2020 in a report titled “AREIT completes landmark IPO, 2x oversubscribed“. A portion of the report is quoted below:

“The IPO was oversubscribed by twice the base offer, with “high-quality” domestic and international institutional investors participating in the book-building notwithstanding the continuing coronavirus (COVID19) pandemic, Ayala Land disclosed to the Philippine Stock Exchange on Thursday.”

But the most striking similarity is in the use of the proceeds.

In AREIT since most of the shares offered were secondary shares owned by ALI, the proceeds went to ALI. The net proceeds from the primary shares offered were used to pay ALI for an acquisition of a property owned by ALI. In sum, the proceeds of the public offering accrued to the benefit of the parent company, ALI. 13. Billion Pesos went to the coffers of ALI.

In CHP’s case, the shares offered were primary shares raising a staggering total of 25.1 Billion Pesos. Briefly, the proceeds went to the coffers of CHP but then it was immediately used to pay ultimate parent company CEMEX of Mexico. For a detailed discussion on this please click here.

As observe on those two public offerings, the market typically punishes the shares when most of the proceeds of the IPO accrues to the benefit of the parent company or to the controlling stockholder. And the market typically rewards when proceeds of the IPO are used to expand and create more value.

Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective.  Accuretti Systems Inc. does not hold any shares of Cemex Holdings Philippines, AREIT and Ayala Land, Inc..

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