May 31 (Bloomberg) -- Philippine billionaire Henry Sy will merge property units and assets under SM Prime Holdings Inc. this year that will create the country’s biggest developer with at least $14 billion in market capitalization.
SM Land Inc., a closely held unit, will offer existing shares of SM Prime for outstanding stocks of listed affiliates SM Development Corp. and Highlands Prime Inc., according to a joint e-mailed statement issued today by SM Prime and parent SM Investments Corp. SM Land will be combined with SM Prime, which will acquire other property assets of its parent, it said.
SM Prime, the largest Philippine shopping mall operator, is poised to surpass Ayala Land Inc.’s 475.5 billion peso ($11.2 billion) market capitalization. The move will allow SM Prime to pursue bigger projects, backed by the group’s experience in developing malls, homes, hotels, offices and resorts, it said.
“This is a value enhancing transaction, giving SM Prime a good size and range that will make the stock more interesting,” Rico Gomez, who helps manage $2.8 billion at Manila-based Rizal Commercial Banking Corp. “This will create an effective competitor to Ayala Land, which commands a premium in the market for its size and versatility.”
The planned consolidation is worth 279 billion pesos and once completed will give SM Prime at least $14 billion in market capitalization, SM Development President Jeffrey Lim, who will remain as chief finance officer of SM Prime, said at a briefing in Manila. He said the transaction will be done through share swaps and cost the group 6.5 billion pesos in taxes.
Shares of Ayala Land, which builds malls, homes, offices and hotels, are trading at 39 times its 12-month estimated earnings. Shares of SM Prime, solely a mall builder and operator before the planned combination, are valued at 27 times, according to data compiled by Bloomberg.
SM Investments, SM Prime, SM Development and Highlands sought a trading halt today. SM Investments is the biggest Philippine company by market capitalization. Ayala Land shares rose 3.1 percent today, after sinking 6.3 percent yesterday.
SM Land will offer shares of SM Prime for SM Development and Highlands from June 4 to July 9, according to the statement. SM Prime will seek the approval from shareholders of the plan on July 10.
SM Development and Highlands approved the plan to delist, according to separate disclosures. SM Development said every share can be exchanged for 0.472 SM Prime share, while every stock of Highlands can be swapped for 0.135 of SM Prime.
“Streamlining our real estate businesses under SM Prime would allow SM Investments to focus on pursuing new growth opportunities,” said SM Investments’ Executive Vice President Jose Sio said in the statement.
Henry Sy Jr. will be the chairman of SM Prime while younger brother Hans Sy will stay as president.
SM Prime’s recurring income will still be “substantial,” accounting for at least 50 percent of total, after the combination and for now won’t affect the mall developer’s dividend policy, Lim said during the briefing.
Manila-based SM Investments, the holding company of the 88-year-old billionaire Sy, fell 4.4 percent to 1,119 pesos yesterday, while SM Prime sank 2.5 percent and SM Development lost 4.2 percent. Highlands Prime, a builder of a mountain resort south of Manila, declined 10 percent on May 29.
Belle Corp., which is building a Manila casino resort complex with Melco Crown Entertainment Ltd. and wasn’t mentioned in the consolidation plan, rose 4.9 percent, the most in more than a month, at the close of Manila trading.
Belle “isn’t totally excluded” from the planned combination and “some matters have to be taken up internally,” Henry Sy Jr. said in the briefing.
Other property assets of Sy include 4 hotels, offices, five convention centers, a 16,000-seat sports arena and a 6,000-hectare beach and mountain resort in Batangas, a province south of the capital.
“This consolidation is clearly intended to rationalize the group’s property business,” James Lago, head of research at PCCI Securities Brokers Corp., said before the announcement. “On the one hand, you have property sales that are explosive and volatile and rental income, at the other, which is steady and predictable.”
Sy, who migrated from China in 1936, has an estimated net worth of $16.3 billion as of yesterday, according to the Bloomberg Billionaires Index. He ranks 45 in the list.
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