SMC eyes $850M from sale of shares, bonds

MANILA, Philippines - San Miguel Corp. (SMC) said it expects to raise around $850 million from the sale of common shares and dollar-denominated bonds convertible to shares later this month.

The amount though is significantly lower than the previous plan to sell up to one billion shares at P200 to P250 each, which would have raised more than $5 billion. The smaller-than-expected issue size dragged down SMC’s share price by 7.5 percent to P160 yesterday at the Philipine Stock Exchange (PSE).

The issue size of both the common shares and exchangeable bonds, however, could still be adjusted, SMC said in a disclosure to the PSE.

The market is rife with talks that the shares, which will be given up by SMC and its major shareholder Top Frontier Investment Holdings Inc., will be sold below market price or from P140 to P150 each share. The pricing of the shares has been set on April 20 while the domestic offering will run from April 25 to 29.

Proceeds from the offering will be used to raise funds for SMC’s infrastructure business, working capital and other general corporate purposes. Top Frontier, on the other hand, will use the money to repay advances from shareholders.

SMC has granted the international joint bookrunners Credit Suisse (Singapore) Ltd., Standard Chartered Securities (Singapore) Pte. Ltd., Goldman Sachs (Singapore) Pte. and UBS AG an option to purchase up to an additional 10 percent of the total number of offer shares to cover over-allotments.

SMC also tapped ATR KimEng Capital Partners Inc., SB Capital Investment Corp. and BDO Capital and Investment Corp. as lead underwriters for the domestic offering.

Ramon S. Ang, president of SMC, expects the conglomerate’s gross earnings to hit $5 billion over the next five years. SMC had a market capitalization of P468.97 billion as of Dec. 31, 2010. “SMC is well-positioned for significant future growth,” Ang said.

SMC is one of the largest conglomerates in the country in terms of market capitalization, with revenues equal to approximately three percent of the Philippine gross domestic product last year. Originally founded in 1890 as a single brewery in the Philippines, SMC has transformed itself from a market-leading beverages, food and packaging business with a globally recognized beer brand, into a large and diversified conglomerate with additional market-leading businesses and investments in the Philippines’ fuel and oil, power, infrastructure, telecommunications, banking and mining industries.

SMC chief financial officer Ferdinand Constantino said the conglomerate’s strategy will achieve a more diverse mix of revenue and operating income, better position the company to access capital, present different growth opportunities and mitigate the impact of downturns and business cycles.

Constantino said revenues are seen to grow eight to 12 percent over the next three years.

He said the conglomerate believes there are significant opportunities in the premium beer market as the country’s population becomes more affluent. In addition, SMC’s international beer business is experiencing increased sales through increasing brand recognition in selected overseas markets such as Indonesia, Thailand, Singapore and Hong Kong.

For power, SMC is planning to double its power generating capacity over the next five years, and believes its power business will benefit from both growing demand for electricity in the Philippines, which is forecast to exceed the growth rates of Philippine GDP, and a shortage in electricity supply, with the industry constrained by aging power generation assets and minimal new capacity. Furthermore, if spot electricity rates move higher as a result of increased demand, SMC’s margins are expected to increase.

For the food sector, SMC aims to become the lowest cost producer by securing a stable raw material supply and developing alternative raw materials. SMC also plans to streamline its operations to improve profitability of its established business segments, such as poultry, feeds, meat and flour, maximize synergies across operations, and improve margins through outsourcing non-core activities.

In packaging, the group is expected to benefit from trade liberalization and globalization in the Asian region and increase its exports to new markets. SMC plans to improve margins by developing alternative sources of raw materials and optimizing recycling efforts to lower its material costs.

For fuel and oil, SMC believes that the less urbanized areas in the Philippines are underserved, and that there are significant growth opportunities in a growing domestic economy. It aims to sustain its leading position by sales volume with the continued expansion of Petron’s network of service stations. SMC also plans to increase the production of higher margin products.