Jollibee kills planned preferred shares offering

Jollibee [JFC 227.60, down 0.2%; 53% avgVol] [link] ended a rather uncharacteristic period of hesitation by announcing that it has withdrawn its offer of preferred shares. JFC originally filed the offer of up to 8 million preferred shares with the SEC back in June, and released its Preliminary Offer Supplement on June 27. JFC said that it withdrew the offer “after careful consideration of all relevant factors,” and that it would “explore other capital raising opportunities focused on shareholder value and optimization of our capital structure.” JFC had planned the proceeds of the sale of the preferred shares to refinance the company’s Series A Preferred Shares, but now says that the proceeds are “no longer needed for the refinancing” due to “the strong profit performance and cash flow generation of its Philippine business”. JFC also listed other factors that contributed to its decision, including its plan to “reduce its P23 billion CAPEX budget for 2024 by at least 20%”, the rate cuts that it expects to occur this year, and the “profit-accretive contribution from the consolidation of Compose Coffee.”

MB bottom-line: We’ve been talking about JFC’s plan to sell these preferred shares since early March, when it seemed clear that the purpose of the sale was to refinance debt. Then, back in April, JFC’s CFO clarified that the P8 billion in potential proceeds would be split between debt refinancing (P3 billion) and “expansion for growth projects, including growth in the Philippines” (P5 billion). Then we heard next to nothing about the sale until just a couple of days ago when the CFO revealed that they were re-evaluating the preferred share sale due to the “good surprise” of stronger-than-expected organic growth in the Philippine market. Then a quick clarification that any proceeds would be used for “investment in the Philippines” only, and not used to finance the acquisition of Compose Coffee. Then a few hours later, the plan was dead. Whether JFC was apprehensive about issuing debt without the benefit of a rate cut (maybe the announcement in March anticipated a Fed/BSP pivot by now), or it was genuinely surprised by its Philippine performance, or its reduced ambitions eliminated the need for the capital, it’s clear that the vibes on the offering were kind of always wrong. Cursed, as the kids would say. I’d love to get more color on the company’s decision to cut capex by 20%. To me, that seems to be the larger bit of news in all of this.

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