8990 Holdings (HOUSE) sells follow-on shares at P6.50 each

Low-cost mass housing developer 8990 Holdings Inc. (PSE stock code: HOUSE) will raise as much as P9 billion by conducting a follow-on share offering this May 2014, with each share priced at P6.50 apiece.

HOUSE, the developer of “DECA Homes” and “Urban DECA Homes” projects will issue 1.245 billion shares, of which 862.19 million are new common shares to be issued and offered by the company while 382.36 million shares are existing shares of selling shareholders. There is an over-allotment option up to 134.95 million shares.

The retail offering will run from May 2 until May 8. New shares will be listed and will start trading in the PSE on May 14.

Follow-on share offering and Backdoor Listing

A follow-on share sale is different from an initial public offering (IPO), because the company’s shares have already been issued to the public and are already being traded. A follow-on share sale is actually a subsequent offering of shares after an IPO or, in the case of HOUSE, after its shares have been listed in the Philippine Stock Exchange (PSE) through backdoor listing.

In October 2013, HOUSE got approval to conduct a backdoor listing after acquiring IP Converge Data Center which previously traded using the stock code “CLOUD”. The acquisition paved the way for CLOUD’s authorized capital stock to increase from P460 million to P7 billion and for its name to be changed to 8990 Holdings Inc. (HOUSE).

As per the PSE’s rules, backdoor listing occurs “when a listed company acquires or merges or combines with an unlisted company, or when a listed company is acquired by, merged or combined with an unlisted company, and which acquisition, merger or combination results in a substantial change in the business, membership or the board of directors, or voting structure of the listed company.”

Use of proceeds of HOUSE’s follow-on share offering

In this week’s follow-on share offering, HOUSE will receive at most P5.604 billion from the sale of its primary offer shares, which are shares newly-issued by the company. After deducting costs and expenses related to the offering, the company will get P5.24 billion.

According to the company’s prospectus, the full amount will be used for the repayment of existing debt.

Meanwhile, shareholders who will be selling their secondary offer shares will get P3.36 billion. Currently, the biggest shareholders of HOUSE are:

ShareholdersNumber of Shares Owned% Ownership
IHoldings, Inc.1,706,101,60736.64%
Kwantlen Development Corporation838,085,01818.00%
Luis N. Yu, Jr.517,585,48311.12%
Januarius Resources Realty Corporation448,974,1179.64%
Mariano D. Martinez, Jr.402,860,0618.65%
Filipino Public Shareholders181,683,0243.90%
Socorro P. Lim100,000,0002.15%
Raul R. Rocha87,020,0001.87%
Rodrigo B. Libunao, Jr.69,760,4671.50%
Mark Werner J. Rosal69,600,0001.49%
Nicolas C. Divinagracia69,600,0001.49%
Antholin T. Muntuerto69,600,0001.49%
Januario Jesus Gregorio III B. Atencio54,751,2511.18%
IP Ventures, Inc.40,000,0000.86%

Company Overview

HOUSE began development of their first mass housing project in 1991 in Cagayan de Oro and have since expanded into other cities such as Davao, Iloilo, Angeles, Cavite and Cebu. Using the DECA Homes and Urban DECA Homes brands, the company completed 16 mass housing projects comprising approximately 14,000 housing units.

It is currently developing eight more mass housing projects across five cities in the Philippines. HOUSE’s ongoing development projects comprise approximately 24,000 housing units of which, approximately 11,000 units have already been sold, according to the company’s prospectus.

Financial Analysis and Valuation

In 2013, the company booked Net Income of P2.184 billion on total Revenues of P5.36 billion. Net Income increased 28% from 2012, while Revenues grew 40% year-on-year.

PinoyInvestor, a comprehensive resource on Philippine stock trading, recently issued a Special Report analyzing the follow-on share offering of HOUSE. The Special Report cites the in-depth analysis of Unicapital Securities, a duly licensed stock brokerage firm in the country, which probed HOUSE’s growth prospects and assessed whether the P6.50 offer price is fairly valued.

An excerpt from the Special Report:

Demand for low cost housing in the Philippines is expected to continue and HOUSE is positioned to take advantage of the shortage of affordable housing in the country through fast turnaround construction methods and affordable financing programs. Still, HOUSE owns relatively low landbank of 250 hectares compared to its peers.

In contrast, Ayala Land Inc. (ALI) owns landbank of 8,000 hectares; Global Estates Resorts Inc. (GERI) has a 2,000-hectare landbank; Vista Land & Lifescapes (VLL) has 1,700 hectares, while SM Prime Holdings (SMPH) owns a 900-ha landbank.

The Special Report contains detailed financial information and concludes with Unicapital Securities’ fair value analysis of 8990 Holdings Inc. (HOUSE)’ stock price.

To access the complete and detailed Special Report, head over to PinoyInvestor.

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