The Securities and Exchange Commission (SEC) has approved Globe Telecom’s request to raise money via the sale of retail bonds.
Globe Telecom sent a disclosure to the Philippine Stock Exchange explaining that it had been awarded a permit to sell the retail bonds, which would be used, in part, to finance the takeover of Bayan Telecommunications Inc.
Seven-Year Maturity
Globe Telecom will be selling seven billion dollars’ worth of bonds, which will mature after seven to ten years. It plans to use the funds to acquire 100 per cent of Bayan Telecommunications. The company has already acquired 98.26 per cent of Bayan’s loans and has also bought one hundred per cent of the obligations of another Philippines-based company, Radio Communications of the Philippines Inc. Globe Telecom spent $130 million on acquiring those debts, which is far less than the $400 million face value of them. RCPI is a part of Bayan Telecommunications.
The retail bond sale will allow the company to continue with its acquisition plan. Once the 70 per cent debt is converted into equity, Globe Telecom will own 50 per cent or more of Bayan Communications and Radio Communications of the Philippines Inc. In 2023, the two companies will come out of court-administered rehabilitation and should be in a strong financial position, especially as they have a track record of updating themselves to keep up with evolving markets.
As a leading local exchange carrier, Bayan Telecommunications offers telephone, VoIP and wireless landline services as well as broadband connections for people in the Philippines. The company caters to both the residential and business markets. The company’s unique “Family Ties” offering allows subscribers in foreign countries to nominate a beneficiary in the Philippines, who will be given a wireless and landline phone, on a fixed-rate contract, at no cost to them.
Debt Refinancing
Globe Telecom has plans to use some of the bond proceeds for debt refinancing as well as capital expenditures. Globe has borrowed $75 million from the Singapore wing of the Bank of Tokyo-Mitsubishi UFJ Ltd and another $120 Million from the Metropolitan Bank and Trust Co. It also has plans for around $500 million in capital expenditures over the next year, which is a substantial amount of spending, albeit lower than the amount that the company spent in 2012.
The use of retail bonds for this kind of refinancing and expenditure is something that many investors will be watching closely. In the UK, there are calls for improved credit ratings and evaluation systems for companies that rely on bonds for financing. Globe Telecom certainly has an established record and is in a better position than many young companies which ask for investors to purchase their bonds. However, there will be some who question the wisdom of taking on bonds for the purposes of expansion when the company already has a significant amount of outstanding debt. However, given the low price that the RCPI and Bayan Communications are being acquired for, this could be a sound move that will set the company up for decades to come.
