Wednesday, March 10, 2010

Gokongwei’s Cebu Pacific to Go Public


Cebu Pacific announced on Monday, March 8, its plans to raise about P12 billion by offering 125.25 million new common stock to the public through an initial public offering (IPO). The firm has set a maximum price of 95 pesos per share for the offer. The issue is planned to finance the firm's very aggressive fleet expansion project slated for the next five years.

The move comes amid the very strong performance of the local stock market in the past few days, making the timing of the issue perfect for Cebu Pacific. But the recent news about how the company badly treated a special child passenger and his family, and the very recent complaint about the carrier's late passenger policy may possibly negatively affect investors' sentiments for the firm.

Given Cebu Pacific's gains in market share and profitability in the past year, the current strong performance of the stock market, and the recent string of not-so-flattering news about the company, I'm very interested in how the issue will pan out for Cebu Pacific. History and theory also gives us conflicting views of how investors may react to the offer: on the one hand, past IPOs have often experienced extraordinarily high gains in the first few days of trading; on the other hand, one well-known financial theory states that raising money through new equity may send negative signals about the company's prospects (for example, it may mean that the firm is not confident that it can shoulder future interest and principal payments if it borrows the money it needs, or that the company's stock is overpriced, or both) which may pull down the stock price.

I'll guess we'll just have to wait and see to find out.
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