UPDATE 1-San Miguel shareholder Top Frontier drops 54 pct on market debut

Mon Jan 13, 2014 3:08am EST

* Shares fall in proportion to decline in San Miguel stock

* San Miguel divests of Top Frontier to unravel cross-shareholding

* Top Frontier will need to sell shares to pay debt - CEO (Adds reason for decline, cross-shareholding background, comments from CEO, analyst)

By Rosemarie Francisco

MANILA, Jan 13 (Reuters) - Shares of Top Frontier Investment Holdings Inc fell as much as 54 percent on their market debut as investors questioned the quality of the Philippine company's chief asset - its stake in indebted San Miguel Corp.

Investors were also concerned that San Miguel's shares would extend their more than 40 percent drop since the beginning of last year, dragging down Top Frontier's shares.

Senior Top Frontier executives, who also form the management team at San Miguel, have sought to put some distance between the two companies.

Earlier this month, San Miguel unloaded nearly all of its interest in Top Frontier. San Miguel now owns less than 1 percent of Top Frontier compared with 49 percent previously.

San Miguel cut its stake by paying out its shareholders with a dividend consisting of 240.2 million Top Frontier shares.

Elimination of the confusion among shareholders caused by the cross-shareholding was the main reason behind the dividend and subsequent listing, the head of both companies said.

Top Frontier owns 66.1 percent of San Miguel, which has almost $18 billion in liabilities. Top Frontier's stake in San Miguel remains unchanged.

ASSET VALUE

The drop in Top Frontier's shares on Monday is in step with San Miguel's decline, analysts say.

Shares of Top Frontier closed down 44.4 percent. That is almost 10 times the 5.6 percent that San Miguel shares have fallen since Jan. 2, when the conglomerate awarded dividends in the form of one Top Frontier share per 10 San Miguel shares owned.

Top Frontier shares dropped to 98.95 pesos compared with a listing price of 178 pesos, based on a valuation by independent advisor Punongbayan & Araullo.

The listing price was based on par with Top Frontier's assets, while San Miguel shares are trading below net asset value, said AB Capital Securities analyst Gregg Ilag.

"I think the market is doing the same pricing mechanism for the Top Frontier shares" by pulling them below net asset value, said Ilag.

San Miguel shares ended down 3.25 percent at 58.05 pesos, compared with a 1.7 percent rise in the benchmark index.

Top Frontier, which Punongbayan & Araullo values at around $2 billion, listed on the exchange via so-called introduction, in which privately held shares are offered to the public.

The company has previously said it would consider selling new shares to the public in 2014 if it sees investment opportunities or if it needs to pay off debt.

"At some point, Top Frontier needs to sell shares to be able to pay off some of (its) obligations," Ramon Ang, president and chief executive of both Top Frontier and San Miguel, said at a news conference following the listing.

Any such sale would be dependent on market conditions, he said.

Apart from its stake in San Miguel, Top Frontier also has interests in gold and nickel mining. (Additional reporting by Erik dela Cruz; Editing by Christopher Cushing)