Land Bank of the Philippines said it is keen on acquiring a majority stake in Philippine Dealing System Holdings Corp., the country’s fixed-income trading platform.
LandBank president and chief executive Alex Buenaventura recommended the acquisition of at least 66.67 percent of the PDS in a letter to the bank’s board.
LandBank currently owns 1.56 percent of PDS through the Bankers Association of the Philippines.
“On 15 June 2017, BAP signed a share purchase agreement allowing the Philippine Stock Exchange to purchase 1,488,902 common shares equivalent to 23.8 percent of the total outstanding stock of PDS for P476,448,640 or at P320 per share,” Buenaventura said in his letter to the board.
The price implied a valuation of P2 billion for PDS and a PE ratio of 8.10x based on 2016 PDS earnings, he said.
“Research on the financials of comparable market infrastructure enterprises in the region and globally show that such businesses trade at an average LTM PE ratio of 34.1x and 35.8x, respectively ,” Buenavetura said,
This indicates that at a price of P320 per share, PDS is undervalued and purchasing PDS shares could be a profitable investment for LBP, he added.
Buenaventura said Land Bank would benefit from stable recurring cash flow from the various fees PDS charges to market players as the country’s central securities depository and fixed-income exchange.
He said over 70 percent of the income of PDS was derived from the provision of services as a depository, registry, and financial intermediary and over 20 percent of revenues came from trading services, the latter an area of opportunity as the local bond market matures.
“The maturation of the domestic fixed income market, improved financial sophistication of local investors, Asean financial integration, and a high growth economy underpinned on infrastructure development make PDS an attractive business model. We also foresee potential synergies with LBP’s treasury operating activities as a government securities eligible dealer,” Buenaventura said.
Buenaventura requested from the LandBank board an authority to formally engage the Development Bank of the Philippines as the financial advisor for the transaction to facilitate the acquisition.
“The engagement of DBP is a vital preparatory act to initiate the acquisition process,” he said.