MANILA – (May 31, 2013) The SM group has approved the consolidation of the property-related businesses of tycoon Henry Sy Sr. under SM Prime Holdings Inc, making it an integrated real estate company.

In a disclosure to the Philippine Stock Exchange, SM Prime said SM Investments Corp (SMIC) said they will undertake a series of transactions amounting to P279 billion to complete the proposed consolidation that will give the enlarged SM Prime a market capitalization of $14 billion.

As part of the reorganization, SM Prime is amending its primary purpose to mixed-use real property developer.

In the first phase of the transaction, SM Land Inc, a privately held real estate unit of SMIC, will offer existing shares of SM Prime in exchange for the outstanding shares of SM Development Corp (SMDC) and Highlands Prime. The offer will run from June until July 9.

SMDC and Highlands Prime have moved to delist from the local stock market.

Following the completion of the exchange offers, the second step involves the merger of SM Land with SM Prime, with the latter as the surviving entity. SM Prime will then acquire specific real estate companies and assets of SMIC in exchange for new shares in the mall developer.

The enlarged SM Prime will effectively own the following real and personal properties of the SM group:

– At least 84 percent direct interest in SMDC,

– At least 89 percent direct interest in Highlands Prime,

– 10 percent direct interest and 90 percent indirect interest in Prime Metroestate Inc,

– 100 percent direct interest in SM Hotels and Conventions Corp,

– 100 percent direct interest in SM Arena Complex Corp,

– 100 percent direct interest in Costa Del Hamilo Inc, and

– 75 percent direct interest and 25 percent indirect interest (via SMDC) in Tagaytay Resort Development Corp.

SM Prime will also acquire the following real assets previously owned by SMIC such as Taal Vista Hotel, Radisson Cebu Hotel, Pico Sands Hotel, SMX Convention Center, MoA Arena, MoA Arena Annex, Casino and Waste Water Treatment Plant, EDSA West and Park Inn Davao, among others.

Completion by yearend

The reorganization is subject to the approval of stockholders owning two-thirds of SM Prime’s outstanding capital stock on July 10 and the Securities and Exchange Commission’s approval of the doubling of the company’s authorized capital stock from P20 billion to P20 billion for the issuance of new shares. SM Prime said it has received support for the reorganization from its major shareholders.

BDO Securities Corp is acting as offer agent for the exchange offers. BDO Capital and Investment Corp, J.P. Morgan (S.E.A.) Limited and Macquarie Capital (Singapore) Pte. Limited are acting as financial advisors for the reorganization. Manabat Sanagustin & Co, the local member firm of KPMG International in the Philippines, is the independent financial advisor to the proposed consolidation.

The consolidation is expected to be completed by the end of this year, subject to regulatory and stockholder approvals.

“Mr. Henry Sy, Sr. has nurtured SM over the past 50 years from a Shoemart store in 1958 to become the Philippines’ leading conglomerate which, after this transaction, will hold one of the leading Asian real estate players today. I am honored to take his legacy forward by announcing this transformational reorganization. The enlarged SM Prime will be in a very good position to take the business up to its next phase of growth,” said son Henry T Sy Jr., who will become chairman of the merged entity.

The elder Sy will remain as chairman emeritus, while son Hans T. Sy and Jeffrey Lim will continue their existing role as president and chief finance officer of the enlarged entity, respectively.

The consolidation is intended to create an integrated real estate company with pro-forma assets of P284.1 billion, 92 percent higher than the existing P148.1 billion. Land bank will grow eight times to 920 hectares from 110 hectares at present, whereas net income will increase 56 percent to P17 billion from P10.9 billion as revenues nearly double to P57.4 billion from P30.7 billion.

Studying inclusion of Belle

Another Sy-owned firm, Belle Corp, which is building the integrated hotel and casino project Belle Grande Manila, was excluded from the consolidation because it was not a pure property play. SM is still studying if it will include Belle in the merger, but acquiring its property business may be an option for the company moving forward, Sy Jr.

“Our vision of SM Prime to become a fully integrate real estate benchmark can be efficiently supported if we work as one team. The integration of the property business will give us the scale, right organization, agility and resources that will allow us to participate in a highly attractive opportunity that goes with the stronger macroeconomic development,” Lim said.

The merged entity will undertake larger scale projects with the participation of all of its business units. It will move further into the development of lifestyle cities, which may be variants of the Mall of Asia Complex, while broadening the group’s market reach for its specific core business units.

Headroom for funding

SMIC and SM Prime said the transaction will also strengthen the enlarged company’s balance sheet and reduce its debt exposure, providing more headroom for funding options to support the new company’s organic and inorganic growth objectives.

Jose T. Sio, SMIC executive vice president and chief finance officer, said the “landmark transaction is mutually beneficial for all the stakeholders.”

“The broadened organizational capabilities of the new entity will give it the operational and financial muscle to create additional value in our asset base through accelerated and synergistic projects, not just among the property companies but also among the other core businesses of SMIC, which includes retail operations and banking. Streamlining our real estate businesses under SM Prime would likewise allow SMIC to focus on pursuing new growth opportunities,” said Sio.

The PSE today approved a full-day trading halt on the shares of the four listed property-related companies of the SM group ahead of the announcement. The trading halt on the shares of SMIC, SM Prime, SMDC and Highlands Prime commenced at 9 a.m. Trading of their shares will resume on Monday.

SM Group approves merger of companies By Jenniffer B. Austria | Posted on Jun. 01, 2013 at 12:02am | 581 views

Billionaire Henry Sy is merging its property units and assets under SM Prime Holdings Inc. in a move to create country’s largest property firm with a market capitalization of $14 billion (P588 billion).

SM Investments Corp. and SM Prime Holdings Inc. said in separate disclosures to the stock exchange their respective boards of directors approved the merger via share swap transaction.

The group said under the plan, SM Land, the private property unit of the Sy family, would offer existing SM Prime shares for the outstanding stocks of listed SM Development Corp. and Highlands Prime Inc.

The group said after the completion of the exchange offers, the second step involved the merger of SM Land with SM Prime, with the latter as the surviving entity.

Henry Sy Jr., who will become chairman of the merged entity, said the consolidation aimed to create an integrated real estate company, which would allow the merged entity to undertake larger projects.

“The consolidation will give us the scale, the right organization, the agility and resources that will allow us to participate in highly attractive opportunities that go with stronger macroeconomic environment,” Sy Jr. said.

SMDC is the real estate unit of SMIC while HPI is a developer of high-end properties within Tagaytay Highlands. Both companies will be delisted from the stock exchange following the merger.

SM Prime, the largest shopping mall operator, is poised to surpass Ayala Land Inc.’s P465.6-billion ($11 billion) market capitalization. The move will also allow SM Prime to pursue bigger projects, backed by the group’s experience in developing malls, homes, offices and resorts, it said.

“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.”

SM Investments, SM Prime, SM Development and Highlands sought a trading halt Friday. Trading of Sy-owned stocks would resume Monday.

SM Prime said it would acquire specific real estate companies and assets currently held by SMIC in exchange for new shares in SM Prime. One of the assets to be acquired is the 60-hectare Mall of Asia complex in Pasay City.

SM Prime chief finance officer Jeffrey Lim said in a presentation the consolidation would boost the company’s landbank to 920 hectares from 110 hectares while assets would increase to P284 billion from P148 billion. With Bloomberg