SMC-Campos group taps 3 lenders for Del Monte buyout

San Miguel Corp., the largest Philippine food and drinks company, has tapped three banks for a loan that would complete its estimated $420-million buy-out of Del Monte Pacific Ltd, a banker involved in the deal said.

HSBC Holdings Plc, Development Bank of Philippines and Banco De Oro Universal Bank will arrange the financing worth as much as $250 million, the banker said. San Miguel is part of a joint venture to buy Singapore-listed Del Monte, and the amount of the loan will depend on how many shares the venture acquires, the banker said.

The loan will be for 12 months and will be re-financed by a longer-term method such as a bond sale or a syndicated loan, which will also be arranged by the three banks, the banker added.

The joint venture bought 49.8 percent of Del Monte Pacific for about $260 million, funding it on its own. San Miguel will jointly offer to buy the remaining 50.2 percent of Del Monte Pacific with NutriAsia Inc., a Philippine ketchup and sauce maker controlled by the Campos family. San Miguel owns 42 percent of the joint venture company, and NutriAsia owns the rest.

In a push to be an Asia-wide food and beverage company, San Miguel in May bought Melbourne-based National Foods Ltd. for A$1.9 billion ($1.4 billion). In May it got a six-month loan for $1.15 billion to fund that acquisition.

That loan paid a margin of 105 basis points, or 1.05 percentage points, over the London interbank offered rate. Three-month Libor, a rate set daily by banks and used as a borrowing benchmark, was at 4.45 percent last Monday.

The initial loan was replaced in July by a $500-million facility, which paid 15 basis points less, or 90 basis points over Libor. The refinancing was arranged by ABN Amro Holding NV, Barclays Plc, BNP Paribas SA, Calyon, Citigroup Inc., HSBC Holdings Plc, ING Groep NV, Sumitomo Mitsui Banking Corp. and Standard Chartered Plc.

Credit rating agency Standard & Poor’s said it would not change San Miguel’s long-term foreign currency credit rating of BB- even with the additional loan for Del Monte. S&P, however, said it would lower the rating should San Miguel "weaken its cash flow coverage measure to support an ambitious acquisitive growth strategy."

San Miguel had P19 billion in cash as of September 2005, about 30 percent lower than the P27 billion it had on Dec. 31, 2004, according to the company’s quarterly report.

San Miguel has been financing its acquisitions and expansion activities with new debt, thus raising its financing charges, which already weighed on earnings in 2004.

San Miguel said the investment is in line with its strategy of enhancing its position in the foods business and in seeking to increase business diversity through overseas acquisition.

Del Monte Pacific owns the rights to market Del Monte products in the Philippines and the Indian subcontinent, and manufactures canned fruits. It has the world’s largest pineapple plantations.

As of December 2004, beverages contributed 27 percent of Del Monte Pacific revenues, with 67 percent coming from processed food and five percent from non-processed food.

DMPL has a strong market position in the Philippines with over 85 percent market share in pineapple solids and about 80 percent in mixed fruits and tomato sauce.

San Miguel is in the process of integrating its domestic and regional food business under National Foods.

With effective management of integration risks, S&P said San Miguel’s earnings profile is likely to become more diversified in terms of geographical distribution and product segmentation.

Accordingly, contributions from international operations are expected to account for 40 percent of group revenue, compared with 17 percent-18 percent in 2004. – Zinnia dela Peña, Mary Ann Reyes