SMB’s P20 B bond offering gets highest rating

MANILA, Philippines - Beer giant San Miguel Brewery has obtained a triple A credit rating from Philippine Rating Services Corp. on its upcoming P20 billion bond offering.

A PRS Aaa rating means that the bonds were deemed of highest quality with minimal credit risk and that the borrower’s capacity to meet its financial commitment on the obligation was extremely strong.

The P20 billion bonds, with a tenor of seven and 10 years, include an oversubscription option of up to P5 billion.

The existing issue credit rating of SMB’s outstanding bonds amounting to P45.21 billion has also been maintained at PRS Aaa.

Proceeds from the proposed bond issuance will be used to refinance maturing obligations including the outstanding Series B bonds worth P22.4 billion maturing on April 4.

The Series B bond is the second tranche of the P38.8 billion worth of retail bonds issued by SMB in 2009.

PhilRatings assigned its highest credit rating to SMB after taking into account SMB’s dominant market position domestically; experienced management and production team, with technical support from Kirin Holdings; sustained track record of producing significant amounts of cash from operations relative to debt servicing and other capital expenditure requirements; and strong financial flexibility and adequate capitalization which are seen to further improve in the medium-term.

PhilRatings noted SMB’s long history of sustaining significant competitive advantages over current competitors, enhanced further by the industry’s high barriers to entry for prospective players.

SMB is the long-time leader in the Philippine beer industry, with a reported estimated market share of more than 96 percent as of end 2013. It has five breweries which produce its roster of established beer brands including, San Miguel Pale Pilsen, Red Horse Beer and San Mig Light. Its newer products, such as San Mig Zero and San Miguel Flavored Beer have also been well received by consumers, demonstrating the company’s ability to anticipate and respond well to trends in the market.

PhilRatings likewise cited SMB’s strong cash position despite the steep hike in sin tax products. SMB ended last year with cash from operations of P13.67 billion.

The beer firm’s debt to equity (DE) ratio also remained manageable at 1.4x as of end-2013. Solvency ratio likewise remained more than adequate at 1.6x.

“The refinancing is likewise expected to lower the company’s interest burden given currently advantageous market conditions and extend further its debt maturities. Such will strengthen the company’s financial position in the medium term,” PhilRatings said.

“Going forward, the beer industry is expected to continue to grow and recover from the effects of the implementation of the new excise tax law in 2013. In the medium term, the company will continue implementing campaigns for volume generation and will develop other channels of distribution and for marketing,” PhilRatings added.