Ayala Corp. (AC)’s Series 2 Perpetual Preferred Shares (2014)



In this section of Investment Products, we compile various investment options that Filipino investors may be interested in. This time, we give you more information about the Preferred Shares offering of Ayala Corporation (AC).

What are Preferred Shares?

A Preferred Share is a type of investment that is a hybrid between debt and equity. Its debt component gives investors a fixed, regular income (called dividends) while the equity component refers to the rights accorded to the investor as part-owner of the company.

Preferred shareholders are typically paid a fixed and announced rate of return (or dividend rate) every year. Depending on they type, a Preferred Share may be cumulative, non-voting, convertible, callable or participating. These characteristics are explained in more detail in the following “Preferred Shares” guide of PinoyMoneyTalk.com:

Ayala Corp’s Preferred Shares offering

This October, conglomerate Ayala Corp. (AC) is offering to the public a re-issuance of their 20 million Class “B” Series 2 Non-Voting Perpetual Preferred Shares, with an Oversubscription Option for an additional 10 million should there be additional demand.

The shares are priced at P500.00, giving AC total proceeds of P15 billion if all shares are sold.

The shares are separate and distinct series from the outstanding 5.25% Preferred Class “B” Shares of Ayala issued on November 15, 2013.

Dividend Rate and Payment Dates

The dividend rate of the Preferred Shares is to be determined via an institutional bookbuilding process and will be announced before the public offer period which will run from October 14 to 20.

The shares will be listed on and will start trading in the PSE starting October 27.

According to the shares’ prospectus, the Dividend Rate shall be computed as the “simple average of the five (5) Year PDST-R2 for each of the 3 consecutive days ending on (and including) the Dividend Rate Setting Date on Oct. 9, plus an indicative spread of 1.25% to 1.75% per annum”.

The dividends are to be paid quarterly, although the AC management “has full discretion over the declaration and payment of dividends on the Shares”, as per the offering’s prospectus. If for any reason the Ayala Corp.’s Board did not declare a dividend in any period, the company will not pay a dividend for that period. However, on any future dates on which dividends are declared, AC’s Preferred Shareholders will receive the dividends due them on such date as well as all unpaid, accrued dividends prior to such dividend payment date.

Features of the Preferred Shares

AC’s Perpetual Preferred Shares shares are cumulative, non-voting, non-participating, non-convertible peso-denominated shares. This means:

Cumulative – The annual dividends accumulate, meaning, if Ayala Corp. will not issue dividends for the year, dividends will accrue and will have to be paid in succeeding years.

Non-voting – Preferred shareholders do not have the right to vote, unlike AC’s common stockholders.

Non-participating – dividends are fixed and investors will not anymore participate in other incomes, such as additional profit distribution if profits are high or surpluses in case of dissolution.

Non-convertible – The Preferred Shares cannot be converted to common stocks.

The dividend rate may also be reset or revised on the Preferred Shares’ 20th Dividend Period (the 5th anniversary of the Issue Date) and during its 40th Dividend Period (the “Final Rate Re-Setting Date” on the 10th anniversary of the Issue Date).

On the Rate Re-Setting Date, the Dividend Rate for succeeding dividend periods shall be the higher of:

  • (a) the prevailing Dividend Rate on such Re-Setting Date; or
  • (b) the sum of:
    • (i) the relevant Reference Rate; and
    • (ii) the Step Up Spread.

In each case, the resulting Dividend Rate, as re-set, shall be expressed in increments rounded up (but not down) to the nearest 1/16th.

If you intend to purchase these Preferred Shares, you may contact your broker or the following joint lead underwriters of this transaction: BPI Capital Corporation, BDO Capital & Investment Corporation and First Metro Investment Corporation.

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3 thoughts on “Ayala Corp. (AC)’s Series 2 Perpetual Preferred Shares (2014)”

  1. “Do note that some preferred shares are not actively traded — and you can see this in the column “Last Traded on”. If a stock is not actively traded, it might be difficult for you to easily buy and sell that security so take note of that liquidity concern as well when you make an investment decision.”
    This statement was from your other blog.
    Does it mean after I bought this PO of AC I cannot easily withdraw it?
    TIA

    Reply
    • Hi @koibito:disqus , it depends on the trading volume of the preferred shares. For example, even if you want to sell 100 shares of your AC Preferred Shares and, in the market, there’s only a buyer for 20 shares, then you won’t be able to sell all your 100 shares. Some stocks in the PSE are not that liquid, which means it may be difficult for you to unload your stocks anytime you want.

      Reply

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