How Manuel Pangilinan Is Trying To Pull Off Record $1.6b Philippine IPO To Tame Debt

Philippine businessman Manuel Pangilinan, who ran into trouble with a borrowing binge two decades ago, is pursuing the biggest-ever Philippine initial public offering in order to reduce the risk of a repeat.

Pangilinan is attempting to pull off a giant share sale for Metro Pacific Investments Corp.’s hospital unit, one that could raise as much as $1.6 billion. The IPO, for which the unit has hired underwriters including a clutch of global banks, is awaiting regulatory approval.

If all goes to plan, the money will go out as quickly as it comes in, Pangilinan said in an interview in Manila. The company has billions of dollars in borrowings and faces large outlays for its toll-road, power-generation and light-rail projects over the next three years.

“We have crystallized a real tangible gain from this investment,” said Pangilinan, Metro Pacific’s chairman, who had to be persuaded to enter the hospital business in 2007 and went on to invest about $100 million in the sector. Most will go toward reduction of debt, he said.

Pangilinan, 73, who’s backed by Indonesian billionaire Anthoni Salim, has made major investments in the Philippines, including in telecoms giant PLDT Inc. and power distributor Manila Electric Co. He also has a history with debt: At the turn of the century, he lost a fortune as the borrowings that funded an ambitious property development push in Manila spiraled out of control.

Preemptive Move

This time, Metro Pacific is addressing its debt preemptively before it becomes an issue, according to Chief Financial Officer David Nicol.

Metro Pacific and its subsidiaries have $4.73 billion in debt, according to data compiled by Bloomberg, as Pangilinan amassed toll road, power, water and hospital assets. They face $1.3 billion coming due from this year through 2023, the data show.

At the $1.6 billion top end of the IPO’s range, Metro Pacific would get about $970 million from selling down its 60% stake in Metro Pacific Hospital Holdings Inc. to about 20%, based on the IPO prospectus. The hospital would get about $125 million for expansion while Singapore sovereign wealth fund GIC Pte would get the balance from the sale of half of its 40% stake in the venture.

The IPO is attractive because it’s the first and only play on Philippine hospitals, which have good business prospects, said Noel Reyes, chief investment officer of Security Bank Corp. But the price is likely to be below the top end of the range following price cuts in two recent Philippine IPOs, he said.

Interest Costs

Metro Pacific will save 2 billion pesos in annual interest costs from the debt payment, giving it a better footing to fund a three-year expansion that includes toll roads, four waste-to-power projects and the extension of Manila’s light railway, Nicol said.

“The cash comes in but it will quickly go out to back projects,” Nicol said. “Over the next few years there is a lot of capital going out but it takes a while for payback time.”

“It is a home-run transaction,” George Ching, an analyst at COL Financial Inc., said of the IPO. “Debt will become more manageable,” he said. Still, “the fear is the businesses the money will go into will face regulatory risks.”

Metro Pacific’s toll road and water ventures in the Philippines have found it difficult to raise rates under their concession agreements with the government as regulators have delayed approval of the adjustments.

Pangilinan’s foray into hospitals started after one of his executives introduced him to an oncologist, who persuaded Pangilinan to become chairman of Makati Medical Center, which Pangilinan described as a money-losing hospital that was behind in its investments. He then decided the hospital business “wasn’t so bad” and went on a buying spree, nixing a promise that he would exit in two years.

Hospital Business

Pangilinan has since built the largest Philippine private hospital group. The group served 3.8 million outpatients and 194,000 inpatients last year. It had more than 3,200 beds at 14 hospitals at the end of June, up from 1,095 beds in 2008. The group posted 829 million pesos in profit on 7.6 billion pesos in net sales in the first half of 2019.

Metro Pacific Hospital would be valued at about 29 times Ebitda at the top price of 182 pesos a share, based on annualized first-half numbers. Pangilinan says he counts the business as among his greatest hits. “It’s the fastest-growing business” in the group, he said.

“We have made good investments, we have made lousy ones, but on the whole, we are ahead,” Pangilinan said. “It’s only in the course of time when we became more familiar with valuations of overseas healthcare institutions that we said ‘Oops, maybe we can get a similar level of valuation.’”

Bloomberg