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Tuesday, October 26, 2010

Cebu Air Gains After Completing World's' Biggest IPO for Low Cost Carriers

Cebu Air Inc., the Philippines’ second-biggest carrier, climbed in its trading debut in Manila after the airline completed the nation’s biggest initial public offering in five years.

The stock rose 6.4 percent to 133 pesos at the 12 p.m. close on the Philippine Stock Exchange from its IPO price of 125 pesos. The carrier and parent JG Summit Holdings Inc. raised 23.33 billion pesos ($540 million) in the share sale. The airline’s market value is about 81.6 billion pesos.

The carrier will use the proceeds to acquire planes as it takes delivery of 24 aircraft by 2014 to increase flights, President Lance Gokongwei said today in Manila. Cebu Air estimates revenue from international routes will make up half of sales after five years, outpacing growth in domestic demand.

“Cebu Air offers a good play on Philippine tourism and a proxy on consumer spending,” said Olan Caperina, who helps manage about 500 billion pesos at Manila-based Bank of the Philippine Islands. “At its IPO price, the stock is valued at 13 times estimated earnings, which is cheaper than the overall market.”

JG Summit fell 3 percent to 24.25 pesos. The company gets about half its revenue from food, agriculture and commodities, and 24 percent from air transportation.

Overseas Investors

Cebu Air, which plans to fly 10 million passengers this year, sold 30.66 million shares in the IPO. Manila-based JG Summit sold 155.98 million existing shares. As much as 70 percent of the offering was allotted to overseas investors.

The airline had net income of $68.4 million in the first half of this year, according to its IPO prospectus. The document also said Cebu Air carried more passengers on domestic flights in the period than its bigger rival Philippine Airlines Inc., which is involved in a labor dispute with flight attendants and has a shortage of pilots.

The share sale surpassed AirAsia Bhd.’s $227 million IPO in 2004 and Ryanair Holdings Plc.’s $160 million initial share sale in 1997, Cebu Air said in a statement today. Ryanair’s market value has climbed to 6.2 billion euros ($8.7 billion) at yesterday’s closing price, while AirAsia was worth 7.1 billion ringgit ($2.3 billion) at the 12:30 p.m. break in Kuala Lumpur.

The Manila-based carrier aims to fly 20 million passengers by 2014, Gokongwei said in a speech today. International fliers will increase by as much as 35 percent, while local passengers will rise by 15 percent over five years, he said.

Market Share

Cebu Air has a fleet of 29 jets that fly to 33 Philippine and 16 international destinations. The company said its share of the domestic market is almost 50 percent while it controls 15 percent of international passenger traffic into the Philippines.

The IPO, which was priced at the middle of the 110 pesos to 135 pesos range targeted by the airline, is the Philippines’ largest since 2005, when SM Investments Corp. raised 28.8 billion pesos.

JG Summit will use its estimated $400 million share of proceeds from the sale for debt payment. The company has $300 million of debt due between 2011 to 2013, Bach Johann Sebastian, senior vice president at Cebu Air and vice president at JG Summit, said today.

Cebu Air also said it may sell an additional 28 million shares should demand exceed the stock on sale. Citigroup Inc., Deutsche Bank AG, JPMorgan Securities Ltd. managed the overseas sale of the shares while ATR KimEng Capital Partners Inc. arranged the domestic component of the offering.

Posted via email from Aviation Professionals dot Org

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