LOW-COST housing developer 8990 Holdings Inc. said its maiden offering of P9-billion corporate bonds will be used to lengthen its maturity debt profile.
8990 President and CEO Januario Jesus Atencio said the move was meant to match its long-term contract to sell receivables with long-term debt.
“The principal purpose of the bond floatation is not necessarily to raise fresh capital. We note that in raising an optimal amount of debt at low interest rates benefits 8990’s shareholders as well, as it increases returns on equity and it makes our balance sheet more efficient,” Atencio said.
“The timing of this bond issuance takes advantage of a low interest-rate environment as well as excess liquidity in the market,” he said.
After its successful follow-on equity offering in May last year, the company is currently under-leveraged and has significant additional debt capacity, it said.
As of end-2014, it has a debt-to-equity ratio of 0.8, down from the previous year’s 1.67.
A higher ratio means a company is aggressive in financing its growth with debt.
The company said the bond float diversifies 8990’s creditor base to include other financial institutions, such as trust, retirement and pension funds, insurance companies and individual retail investors.
A fixed rate over a long tenor eliminates the risk of interest rate fluctuations, the company said.
The company’s board earlier this week approved the issuance of a principal amount of P5 billion and an oversubscription of P4 billion. Tenors of the debt will be at five, seven and 10 years, Atencio said.
BDO Capital and Investment Corp. and First Metro Investment Corp. were picked as joint issue managers and joint lead underwriters.
Proceeds of the float will be used for its land bank and development of projects and retire some of its higher interest-bearing loans, Atencio said.
8990’s net income last year surged 52 percent to P3.33 billion from the previous year’s P2.18 billion.
Gross sales rose by 48 percent to P7.9 billion from the previous P5.35 billion.
Its gross sales for last year met its expectations but its net income surpassed its guidance of just P3 billion.
Net margin for the year was slightly higher at 43 percent from last year’s 41 percent.
For this year the company is expecting a net income of between P3.8 billion and P4 billion, and revenues of between P9.6 billion and P10 billion, still as a result of its continued construction of housing units geared for the working class and families of overseas Filipino workers.
Atencio attributed the higher net-income growth to the increased average prices by 18 percent, negotiated lower price for materials, among others.
Housing revenues plus contract to sell income reached P8.6 billion last year as takeouts of housing units remains at 88 percent of the core business.
“We note a higher sales surplus of more than 800 reservations in 2014, with zero ready-for-occupancy units similar to last year,” the company said.