Ayala Land sells P5.6-B worth of AREIT in discount block sale

Ayala Land [ALI 34.00, down 0.4%; 134% avgVol] [link] disclosed that it sold 181 million shares of its subsidiary, AREIT [AREIT 32.00, down 4.5%; 4854% avgVol], at P31.10/share which was a 7.2% discount to the previous day’s closing price. The sale raised approximately P5.6 billion for ALI, but more importantly, it pushed 181 million AREIT shares into the public float ahead of its planned property-for-share swap with AREIT. Under the terms of the swap, AREIT will issue 841.3 million primary shares to ALI and its subsidiaries and affiliates, and ALI must sell approximately 260 million shares to avoid an AREIT public float violation when the transaction is approved by the SEC.

MB bottom-line: This is just the first sale. There’s going to have to be another to ensure that AREIT’s post-swap public float stays above 33.33% to avoid suspension. In recognizing that, we also need to prepare ourselves for the likelihood that the next sale will also be at a discount to the market price, and that the timing of the next sale will not be telegraphed and will probably feel quite random. While all of this creates a degree of near-term uncertainty, I don’t think we’re going to see ALI “pull a SPNEC” and get caught by surprise when the SEC approves the swap, get AREIT suspended, struggle to find a buyer, go silent, and then reappear days before AREIT’s delisting to announce that it has donated a massive chunk of shares to some weird foundation chaired by the Zobel matriarch. I’m not worried about the discount either, since that’s entirely normal in a block sale (like this one) that is not large enough to come with board representation. AREIT trades roughly one million shares per day as its normal volume, so it would take approximately six months for ALI to complete this trade by selling to the public through the PSE system, and the near-constant selling pressure would likely tank the price far more than the modest 7.2% discount ALI offered to the buyers of this block. 

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