Too expensive? Converge tumbles on stock market debut

Shares of Converge ICT Solutions dropped as much as 10.6% just an hour after its stock market debut on Monday, October 26.

Analysts earlier noted that the price was quite expensive for the company's current size.

Converge, which trades under the symbol CNVRG, sold 1.7 billion shares at P16.80 apiece and raised P29.1 billion or $600 million in the Philippines' largest initial public offering (IPO) in recent history.

The company said the offering was oversubscribed internationally, drawing in cornerstone investors like OMERS, Genesis, Thornburg, and Macquarie.

On the domestic front, the offering secured over P4.86 billion.

But investment houses like COL Financial previously said Converge's offer price was a "significant premium" compared to regional peers.

"Converge will have to significantly expand its current customer base and increase its [average revenue per unit] to justify its IPO price," COL Financial said in a research note last October 9.

Converge chief executive officer Dennis Anthony Uy – not to be confused with businessman Dennis Uy of Dito Telecommunity – defended the valuation in a briefing on Monday, saying that the company is confident it can hook up as much as 60% of Filipino households to broadband by 2025.

Uy also said fixed internet demand is expected to rise further in the coming years.

"Converge is well-placed to address this significantly unserved demand and create long-term value for our business and shareholders," he said.

BDO Capital president Ed Francisco noted that in big IPOs, take-up is historically low.

"Usually for very big IPOs, very small take-up. But in this case, it was very large, so we were very happy, this showed that demand was strong," Francisco said.

BDO Capital and BPI Capital are the joint local underwriters, while Morgan Stanley and UBS are the global coordinators for the IPO.

Converge will use the funds raised to further expand its network on a national scale.

In the 1st half of 2020, Converge generated P6.5 billion in revenues, which was 65% higher year-on-year. It has around 750,000 residential customers, mostly from Metro Manila.

Converge stocks closed at P15.22, 9.4% lower than the IPO price. Meanwhile, the Philippine Stock Exchange index traded flat, gaining only 0.1%. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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