What You Need to Know About A Brown Company Inc. and its Preferred Shares Offer

A Brown Company Inc. (ABCI) is planning to raise as much as P1.5 billion from the sale of preferred shares this week. The proceeds that will be raised is on the assumption of oversubscription.

The offering period runs from November 15 until November 19 with a target listing date on November 29, 2021.

Preferred shares, or prefs, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. Prefs are less volatile than common shares due to its stable returns. With prefs, investors can receive stable and regular dividends with higher yields compared to other common shares and bonds.

Before investing in prefs, it’s important to understand the company you are buying from. Is it financially capable of paying its dividends on time? Here are 5 things you should know about the A Brown preferred share offering:

1. The offer structure. ABCI, who has established itself as the premier developer for the middlemiddle, upper-middle, and premium markets in Mindanao, is selling 10 million preferred shares at an offer price of P100 per share, with an oversubscription option of up to 5 million preferred shares under its 50 million shelf registration. The initial dividend rate will be 7.0% per year, paid quarterly.

PNB Capital and Investment Corporation is the sole issue manager, lead underwriter, and sole bookrunner for ABCI’s preferred shares.

2. Capital will fuel growth potential. ABCI is looking to jumpstart its development pipeline of real estate projects, and to add strategically to its landbank to further increase the company’s growth potential.

It intends to use up to P400 million of the proceeds from the offer to support land banking initiatives in the areas of Tanay, Rizal, Cagayan de Oro City, Butuan City, and Bukidnon. It is also allocating up to P350 million from the proceeds to fund subsidiary Irradiation Solutions' Tanay Multipurpose Irradiation Facility Project, set to be the first commercial E-Beam facility to be built in the Philippines and a growth business that has the potential for expansion in key locations nationwide as the market develops.

3. Strong financial record. 20-year Northern Mindanao housing and development pioneer ABCI has remained profitable despite the economic challenges brought about by the pandemic. In 2020, the company reported P1.5 billion in reservation sales and declared a net income of P294 million and P399 Million EBITDA. With a substantial landbank portfolio of 293 hectares in marketable locations, ABCI is well-positioned for growth in Mindanao and other regions.

4. Diversified portfolio. ABCI has diversified interests across stable growth and high impact industries contributing a steady stream of dividends. The company’s business portfolio includes investments in power generation such as: Palm Concepcion Power Corporation which operates the 1st Unit of a 2x135MW coal-fired plant in Concepcion, Iloilo; Peakpower Energy Inc. which operates 3 bunker-fired power plants with an aggregate 55 MW that serves requirements of electrical utilities in General Santos, Agusan del Sur, and Bukidnon; and Vires Energy Corp., which is developing a 450MW Floating Power Plant (FPP) along the southeastern coastline of Batangas Bay, Batangas City.

ABCI’s investments in the utilities sector generates stable dividend income to supplement real estate sales, with dividend income from associates amounting to P175 million in 2020, P182 million in 2019, and P93 million in 2018.

5. Lucrative investment. The preferred shares will be listed on the Main Board of the PSE under a new ticker symbol “BRNP” and priced at 7.0 percent. This offer has the features of a dividend rate step up and are redeemable on the fifth year. If we compare BRNP to the current five-year Philippine bond yield at 4.43%, there is an implied credit spread of 2.57%.