By Conrado R. Banal III
Philippine Daily Inquirer
This little-known company, together with its rather unusual name of “8990 Holdings,” just listed on the stock market on Wednesday some P9 billion worth of shares in a follow-on public offering (FPO).
Okay, it may be too early to tell how the market rates the sizable FPO, whether or not it will turn out to be a “hot one.”
Still, the share prices of 8990 Holdings (under the trading symbol HOUSE) have been steady in the past two years, or ever since its backdoor listing. The listed company was originally known as IP Converge Data Center, an IT company which 8990 Holdings acquired a few years ago in an attempt to tap, eventually, the market for funding.
And 8990 Holdings precisely did just that in Wednesday’s listing of those shares worth P9 billion, only two years after its backdoor listing, seemingly to tell the market that, really, the company is in a hurry. Well, it has a history of moving fast in a business known for its long gestation—the real estate sector.
Today, 8990 Holdings happens to be one of the biggest firms, if not the biggest, in the country’s mass housing development sector. It achieved such a lofty status after only 12 years, since its birth in 2002, having already built some 30,000 low-cost shelters in Angeles, Cebu, Davao, Cavite and Iloilo.
On Wednesday, the company listed some 1.2 billion shares on the exchange and, from the looks of it, could be an honest-to-goodness attempt to tap the market for funds by sheer force of circumstance. You see, when 8990 Holdings undertook a backdoor listing in 2012, the Pag-ibig Fund was rocked by problems, thanks to the infamous Global Asiatique scandal.
Prior to the Global Asiatique fiasco, the Pag-ibig Fund (officially known as the Home Development Mutual Fund) provided some kind of lifeblood to developers of low-cost housing in the country, through its “take-out” arrangements.
In effect, Pag-ibig Fund would pay the developers in full and assume the mortgages of buyers, untying developers’ limited capital for the construction of more houses.
But thanks to the Global Asiatique scandal, the Pag-ibig Fund tightened up on the “take-out.” From what I gathered, it used to take the fund only two weeks to release the funds. After the Global Asiatique incident, the process became tedious, at times taking at least 11 months, if you were lucky.
Records showed for instance that 8990 Holdings obtained from the Pag-ibig Fund some P25-billion “take out” when it started its low-cost housing business in 2002. It fell to almost zero in recent years.
The low-cost housing business is the equivalent of the hand-to-mouth existence in the lucrative world of property development. What I am saying is that the big boys—Ayala, Megaworld, Filinvest, or Summit groups—would not want to touch mass housing.
Low-cost housing developers are guerilla-type warriors, building a few houses in a couple of hectares here and there, precisely because of limited capital. Without the “take-out” arrangement with the Pag-ibig Fund, their cash flow would be taxed.
Low-cost housing thus obtained a reputation for being a low-margin business because of the market segment it served—the low-income groups—although the segment presented the biggest demand for shelter. The government estimated the housing backlog in the country at only 3.6 million units, which was rather conservative. This could mean that our government was embarrassed to admit the real score. Anyway, 8990 Holdings already proved that mass housing could be a high-margin business, when it applied its own (i.e., proprietary) technology to reduce the construction cost, by turning to pre-cast housing models, which cut down costs some more by shortening the construction time to 10 days max.
In the same way, it created its own in-house financing when the Pag-ibig Fund faucet sort of dried up, instituting strict collection among home buyers, discouraging back due accounts for instance by cutting water supply connections, while it set up incentive systems for up-do-date accounts.
Still, in-house financing could burden the finances of property developers even among the big boys, who at least had the big banks for support with mortgage deals. In the case of 8990 Holdings, it knew all along its job was to build low-cost houses efficiently, and it could not last for long in the mortgage game because it was not a bank in the first place.
And so it conducted the P9-billion FPO, with some P5.6 billion of the proceeds going to debt payment and land banking. Some P3.3 billion in secondary offering will go to the original three founders of the business.
Still, some 60 percent of the FPO, or about P5.4 billion, was bought by two institutional investors: TPG Capital (formerly Texas Pacific Group) that have equity investments all over worth P60 billion, and Khazanah Nasional (the investment arm of the Malaysian government) that has some $32 billion of equity investments.
According to SB Equities (local underwriter of the P9-billion FPO), 8990 Holdings expects its earnings to grow by 40 percent in the next two years. The company has on its drawing board some 66,000 units worth P66 billion for the next five years.
The only question now is, why do companies like 8990 Holdings have to go it alone in giving the country this basic need called home? Where are our huge unibanks in financing low-cost housing? Where are the bank loans for mass housings?
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