Ayala overbid on FTI not so drastic

By Miguel R. Camus, BusinessMirror

Posted at Aug 30 2012 07:29 AM | Updated as of Aug 30 2012 03:29 PM

MANILA, Philippines - Ayala Land Inc. (ALI) has been battered in recent weeks for what was perceived as an overly aggressive winning bid for the 74-hectare Food Terminal Inc. property on August 14 but one stock brokerage firm says the premium was not as drastic.

COL Financial Group Inc. said in a research report on Wednesday that ALI's overpayment is "not as significant" as the market's perception.

The report also addressed worries about ALI's ability to finance the investment, stating that the builder will likely resort to additional debt instruments.

“We believe the main risks for ALI is execution risk, on the part of both the company and the government,” COL Financial said.

Analysts earlier questioned ALI's nominal bid of P24.33 billion, which is at least P9.67 billion above the next best offer made by Robinsons Land Corp. and more than double the P10.2 billion floor price. ALI's bid also included an upfront cash payment of P19.5 billion in 60 days.

“Although ALI paid a premium for the FTI property, we believe that the ‘overpayment’ is not as significant as that being implied by the other bids,” COL Financial said.

“ALI has an advantage over other bidders in terms of familiarity with the property given that it was also involved in the previous failed bids of FTI, which could explain why it was willing to pay more,” it added.

Based on a recent discussion with ALI's management, COL Financial said the FTI property has a developable area of 55 hectares. Of that amount, only 5.9 hectares have medium to long-term leases and a smaller portion with no pre-termination clauses.

The small number means ALI is not concerned about long-term tenants. Moreover, initial phases of FTI, which should take six to nine months to complete in terms of planning, will not be affected, the report said.

Based on its estimates, COL Financial said ALI can put up 2.5 million square meters of “saleable or leasable” floor area, meaning the builder paid P9,600 per square meter. This came out 24 percent higher than what Megaworld Corp. paid for the nearby JUSMAG property.

“Despite the premium, we believe that the FTI property still has the potential to create value for ALI given the size of the property, its proximity to Makati and Bonifacio Global City, and the easing of access to the area,” the report said, referring to other business districts ALI developed.