NGCP's Backdoor Listing to SGP

NGCP is a monopoly. Being the country’s sole transmission service provider, its backdoor listing might have stir up some opportunistic investors and traders that made the price of an unknown and quite stock to sky high valuations. Today, we are going to look into it in more detail before thinking about the possibility of investing.

The story

NGCP (National Grid Corporation of the Philippines) was a government owned company back in the days. When corruption was discovered, the Arroyo administration decided to make it a public company. With the law stating that it should IPO after 10 years. 10 years will be on January 2020. But the company asked for another year of extension.

The Owners

There are 3 main shareholders in NGCP. 60% owned by Filipinos (Chinese Filipinos to be more accurate) and 40% China’s State Grid Corporation. The 60% of the Filipino owners is where the action is happening.

The Backdoor Listing

The 60% ownership of the Filipino’s are divided equally into 2. 30% from Sy’s One Taipan Corporation and 30% from Coyuito’s Pacifica21. They both decided to combine and settle into one corporation SGP (through a share swap), so that SGP (Synergy Grid & Development Phils., Inc.) would ultimately have ownership interest in NGCP for 40.2%. Meaning, you can get NGCP through SGP. And this is why the stock went wild.

The Analysis Of NGCP as a Potential Investment

The story goes like this, One Taipan and Pacifica21 will subscribe to 4.1 billion newly issued shares of SGP for 20 pesos a share. This is 40.2% of NGCP. Doing the math:

4.1 billion shares x 20 per share = P82 billion is the 40.2% of NGCP

Meaning, the total market cap of NGCP is P203 billion basing on their share swap price.

But, after the share swap, there would be around 5.050 billion outstanding shares of SGP. During the time of this writing, the price of SGP is around P500 per share. The total market cap of SGP would then be 2.525 trillion pesos.

Since SGP is 40.2% NGCP, we take the 40.2% and we get 1.01 trillion pesos market cap for NGCP at today’s price.

Now, for the final data that we need. How much money does NGCP makes?

Since NGCP is a private company, information is scarce. I found this table from a news article stating how much money NGCP makes since the time they are removed from government hands.

On average, they make 22 billion a year so we will use that.

To 1.01 trillion market cap with 22 billion a year in earnings will result in 45 price to earnings ratio. The valuation is a bit high. But we did see a lot of companies currently which are trading at that price. I might of course wait for the price to settle, or when they do have a clear picture of the IPO. Other than that, I would watch this stock closely.

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