Cebu Pacific raises P23.3B in IPO

CEBU Air Inc., operator of the country’s second-largest airline Cebu Pacific Air, completed its maiden shares sale on Tuesday, making it the first Philippine company to go public this year and the world’s largest initial public offering (IPO) for a low-cost carrier.

The company’s shares touched a high of P133.50, up 6.8 percent above its IPO price of P125, before closing at P133 per share, placing it among the top gainers for the day. The last-sale price, however, is P1 below the projected opening price of P134. The benchmark Philippine Stock Exchange Index closed 0.17 percent lower to 4,279.53.

Cebu Air raised P23.3 billion selling 30.66 million primary shares, as well as 155.98 million secondary shares, owned by parent company JG Summit Holdings Inc.  

An overallotment option for another 28 million shares worth about P3.5 billion was likely taken up due to strong demand abroad, BJ Sebastian, senior vice president and corporate planning director of Cebu Air, said in a press briefing.

About 70 percent of the IPO was allotted to international investors.

The primary offer will help the 14-year-old carrier acquire 24 new Airbus A320 planes by 2014—eight of which will be delivered within the next 12 months. At present, the company has a fleet of 29 aircraft that fly to 33 domestic and 16 international destinations.

Cebu Air and JG Summit president Lance Gokongwei said the airline is targeting to fly 20 million passengers in 2014, or twice its target for this year, by expanding routes in the country and abroad.

“We expect over the next four to five years, the number of domestic passengers we carry will increase 15 percent per year. The number of international passengers we will carry will grow 25 to 30 percent per year,” Gokongwei said.

At present, Cebu Air controls half of the domestic market and 15 percent of international flights to the country.

“In the international market, we are only beginning to scratch the surface. We believe we can raise [market share] to 30 percent over the next five years,” he added.

Gokongwei said the company also sees its international business overtaking its domestic operations (which currently account for 62 percent of revenues) in under five years as it increases flights in Japan, China and South Korea.

“Tokyo is a possibility [and ] Nagoya and Fukuoka. In China, we already fly to Guangzhou, Shanghai and Beijing. There are three or four other major cities in China that we have yet to fly to,” he said.

Cebu Air said its IPO exceeded the value of other low-cost carriers around the world. These include Southwest Airlines ($7.15 million), RyanAir ($159.6 million) and regional players such as Air Asia ($220.316 million) and Tiger Airways ($175.939 million).

Cebu Air is also the second-largest Philippine IPO after Sy-led holding firm SM Investments Corp. raised P28.8 billion in 2005.

Jose Vistan, investment research head of AB Capital Securities Inc., said Cebu Air traded within expectations yesterday.

“The market has been on a bullish mode for some time, and the listing of Cebu Pacific was on a day when the market corrected. I think most of those who bought are still holding for the long-term,” he said in a phone interview.

Cebu Air tapped Citigroup Inc., Deutsche Bank AG, JPMorgan Securities Ltd. for the overseas sale of the shares while ATR KimEng Capital Partners Inc. arranged the domestic component of the offering.

Cebu Air had wanted to hold the IPO as early as 2008, however, the plan was put on hold due to the onset global financial crisis. The airline operator’s second was attempt was also postponed earlier this year in light of the political uncertainty in the run up to May 10 national elections.

In the first half, Cebu Air said net income grew more than half to P3.09 billion on revenues which rose almost a third to P14.91 billion. It also carried 5.09 million passengers in the six months to June, or 214,416 more than rival Philippine Airlines owned by tycoon Lucio Tan.

Gokongwei said third-quarter earnings are expected to “follow the trend” shown in the first six months of the year.

The secondary shares valued at P19.5 billion will be used to “strengthen the balance sheet” of JG Summit, Gokongwei said.  

Sebastian said about $400 million (P17.32 billion) from the proceeds may be used for debt repayment.

“We have $300 million in debt amortized between 2011 and 2013. That’s a syndicated loan from 2005,” said Sebastian, who also sits as senior vice president for corporate planning at JG Summit.

At present, Cebu Air accounts for a quarter of revenues of JG Summit which also has interests in food manufacturing, real-estate development, telecommunications, petrochemicals and banking.

The holding firm said first-half profits more than doubled to P7.75 billion as revenues jumped 14.8 percent to P60.76 billion. Shares of JG Summit dropped 3 percent to P24.25 apiece on Tuesday’s close.

Two other IPOs are expected this year—Zamora-led Nickel Mining Corp. which plans to raise a maximum of P8 billion, while IPVG Corp. subsidiary IP Converge Data Center Inc. is raising P400 million.

Miguel Camus, Business Mirror