Stock Commentary

Quick takes from around the market

Merkado Barkada

November 10, 2023 | 8:45am

1. San Miguel [SMC 103.00 unch; 43% avgVol] [link] gave notice that its follow-on offering (FOO) of preferred shares was approved by the PSE. SMC will sell 666,666,700 preferred shares, split into three classes (SMC2L, SMC2N, SMC2O), at a price of P75.00/share. The offer period will start today and run through to November 21, with a tentative listing date scheduled for December 1. This is the first tranche of the ?65 billion shelf registration that the SMC board authorized in September. SMC also announced the initial dividend yields for the subseries of this offering: SMC2L (7.9145%), SMC2N (8.3466%), SMC2O (8.5936%).

MB quick take: Market conditions or otherwise, the SMC debt machine must roll on. SMC applied for a shelf registration that is active for three years, then decided to consume 76% of the allocation in this first tranche. Maybe they’re just giving themselves some wiggle room in case rates don’t do as we anticipate, or in case the airport project needs additional funding.

2. National Grid Corp. of the Philippines (NGCP) [link] received an order from the Energy Regulatory Commission (ERC) setting its total allowable revenue for the period of 2016 through 2020 at P183.5 billion (~P36.7 billion annually). This is 52.7% lower than the P388 billion that NGCP claimed for that period. In support of its order, the ERC evaluated historical data on NGCP’s expenditures and performance to determine if the costs that were incurred during that period were prudent, reasonable, and economically efficient. The ERC found that the NGCP’s reported revenues for the period were higher than its “total allowable revenue”. NGCP, which is owned by Synergy Grid [SGP 7.19, down 1.8%; 131% avgVol], is expected to provide comment to the ERC later this month.

MB quick take: This level of regulatory intervention is part of the risk and challenge of investing in utility companies like NGCP, or any of its utility peers, like Manila Water [MWC 17.30, up 1.1%; 143% avgVol]. Coming into the start of the Marcos Jr. administration, there was a concerning amount of buzz from politicians aiming at NGCP and its franchise. The buzz never evolved into anything more aggressive, and instead seemed to shift into some vaguely ominous pillow talk about using the Maharlika Investment Fund to buy NGCP (with some light sinophobia sprinkled in for good measure). I don’t pretend to know anything about the ERC’s review, about whether it’s reasonable or appropriate, but I’m just watching as someone who has learned to be sensitive to the changing whims of government and the politicians that use the levers of power to achieve various ends. As we saw with ABS-CBN [ABS 3.50, down 2.8%; 52% avgVol], what starts out as cheap bluster can certainly gain momentum and turn into something far more serious.

3. Philippine Telegraph and Telephone [PTT suspen-dead] [link] notified the exchange that the SEC approved several amendments to the company’s articles of incorporation, including a name change (to “PT&T Corp.”), and an increase in authorized capital stock (ACS) from P3.8 billion in common shares and a single class of preferred shares to P12.6 billion in common shares and three classes of preferred shares. PTT said that the name change is to “aid in its branding and marketing activities”, and that the change in ACS is meant to comply with the debt-to-equity conversion requirement as part of its Rehabilitation Plan, and to facilitate fundraising to support its business development plan.

MB quick take: PTT hasn’t been traded for most of my adult life, so it’s a little wild to see this dinosaur twitch to life. Not sure what it’s going to do, but sitting in PSE limbo as a zombie company wasn’t doing anyone any good. Whatever they do, if they make money, will be better than that.

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