Shares of Converge ICT Solutions Inc closed 9.4 per cent lower in their market debut Monday, marking a disappointing opening for the Philippine fibre broadband provider that recently completed the country’s second-largest IPO at $600 million.
Shares in the Warburg Pincus-backed company tumbled as much as 10.6 per cent in the first hour of trade Monday before closing at 15.22 pesos a piece, or 9.4 per cent lower than the 16.80 pesos IPO price.
Saurabh Agarwal, Managing Director of Warburg Pincus, however, told DealStreetAsia that one or two days of trading are not a good indicator of Converge’s prospects.
“As a long-term investor, we don’t focus on day-to-day stock performance. We are here building the business for the long run. I strongly believe that the business fundamental is so robust and opportunity is so tremendous that Converge is well-positioned to accelerate its growth trajectory,” Agarwal said.
Warburg Pincus has been the largest and most important investor and partner to Converge. It completed a $250-million investment in the company in 2019.
Converge, which trades on the Philippine Stock Exchange under the symbol CNVRG, sold 1.7 billion shares at 16.80 pesos apiece and raised 29.1 billion pesos or $600 million, the second-largest in the country, next only to the $627 million raised by Robinsons Retail Holdings Inc in 2013.
The IPO attracted interest from both international and domestic investors. On the domestic front, the offering secured $100 million of domestic demand, making it one of the largest domestic IPO take-ups in the Philippines.
On the international front, the offering was oversubscribed and drew interest from Canadian pension giant OMERS, global investment manager Thornburg Investment Management, and investment banking group Macquarie.
The significant cornerstone investment of over 10.930 billion ($225 million) covered approximately 40 per cent of the base offering, and the investments from blue-chip long-only institutional investors accounted for over 80 per cent of the transaction, according to a company statement.
“It’s no small feat to successfully close what is the largest ever IPO in the Philippines with such overwhelming demand from a broad base of investors,” Agarwal said.
Local investment house COL Financial, however, said earlier in a research note last October 9 that the final offer price of 16.8 pesos was at a premium compared to regional peers and that Converge would have to significantly expand its current customer base and increase its average revenue per unit to justify its IPO price.
Converge ICT reported $25.2 million in profit for the six-month period ended June 30, 2020, up from $16.5 million in the same period last year. For the entire 2019, the company posted a profit of $38.2 million, its prospectus showed.
As of June 2020, the company accounts for 55 per cent market share of the high-speed residential broadband subscriptions in the country, according to Media Partners Asia.
The company recorded 732,000 residential fixed subscribers in the first half of 2020, higher than the 530,000 base it had as of end-2019, largely due to the significant increase in subscriber additions following the lockdown.
However, Converge’s fiber-optic network is largely concentrated in Metro Manila and some parts of Luzon. In the prospectus, the company said its coverage includes 200 cities and municipalities across Luzon, including Metro Manila.
Agarwal of Warburg Pincus said Converge ICT “is at the forefront of capturing a massive opportunity” in a market that has historically been significantly underserved.
The Philippines, he said, has an outsized connectivity needs, with a young and internet savvy population, among others, and yet it is still underserved, having the lowest fiber penetration and slowest internet speed in Asia.
“This demand-supply gap creates a very attractive opportunity for Converge to play in and deliver hyper-growth, which we expect will continue for many years,” Agarwal said.