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Friday, March 29, 2024

SMC to cut dollar debt by half

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San Miguel Corp., the Philippines’ largest company, aims to cut the portion of its dollar-denominated debt by half in two to three years to shield earnings from a weaker peso.

The energy, infrastructure and beer company will borrow more in pesos and sell preferred shares to refinance existing dollar debt and fund infrastructure projects ranging from rail and power to ports and toll roads, president Ramon Ang, 62, said in an interview Friday. The company had $8.54 billion of dollar-denominated debt at the end of September, 47 percent of its P855.8-billion ($18 billion) total liabilities, according to the company’s third-quarter filing.

“We will balance our debts. We may not prepay all our dollar debts, but we will limit future borrowings to pesos,” Ang said. “Without the effect of foreign exchange, our operations are doing very well.”

Profit at the century-old brewer, which is now heavily invested in oil and electricity, fell by more than half to P6.17 billion for the first nine months of the year as a weaker peso quadrupled foreign exchange losses to P10.3. Falling fuel prices cut sales at its oil ventures, paring revenue 15 percent to P504.5 billion. San Miguel’s pretax profit is eroded by more than P5 billion each time the local currency weakens by one peso against the dollar, according to the company’s latest financial statement.

“Reducing their dollar-debt exposure is prudent and wise given the outlook that as the US raises interest rates, we will see a strong dollar,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc., the largest lender by assets. “The domestic market remains very liquid and will be accessible for a company like San Miguel.”

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The peso has depreciated 6.8 percent over the past 12 months. The currency is expected to weaken 2.6 percent to 48.3 a dollar by the third quarter from 47.06 at end-2015, according to the median estimate in a Bloomberg survey. It has slumped 0.9 percent this year, the worst performer among Southeast Asia’s most-traded currencies.

San Miguel gets more than half its revenue from oil ventures Petron Corp. and Petron Malaysia Refining & Marketing Bhd. That’s followed by the food, beverage and packaging business and its other energy ventures, according to the company’s latest financial results. The company doesn’t plan to sell its beer business even after receiving some offers, Ang said.

Falling valuations for assets in the oil and gas industries present opportunities, Ang said. Discussions are ongoing for a possible acquisition overseas, he said. The target is worth about $2 billion now, he said, down from about $5 billion in equity investment terms in 2012, when Ang first began looking at the asset.

“San Miguel’s problem now is how to look for new investments,” Ang said. “We don’t have a cash problem.”

Chairman Eduardo Cojuangco Jr. and Ang have helped San Miguel, which started as Southeast Asia’s first brewery in 1890, expand beyond food and drink operations to create a conglomerate in infrastructure, energy and telecommunications. Outside of the Philippines, it has manufacturing operations in Hong Kong, China, Indonesia, Vietnam, Thailand and Malaysia. Bloomberg

San Miguel has rallied 46 percent this year, the biggest gainer in the Philippine Stock Exchange Index, after falling 32 percent in 2015. The stock slumped 66 percent in the five years through 2015 while the nation’s benchmark equities index climbed 65 percent.

“A reason for the stock’s underperformance in previous years was that investors were nervous about its expansion outside of food and drinks, and the debt buildup that resulted from these new ventures,” Ravelas said. “San Miguel is showing it’s managing these risks, and some investors are beginning to see value.”

To help reduce its exposure to exchange rates, the company targets to sell P80 billion worth of preferred shares in three years, with an initial batch of P30 billion to be sold this quarter. The company in September raised P33.5 billion from a similar fundraising. It may also sell peso-denominated retail bonds to refinance dollar-denominated debt, chief finance officer Ferdinand Constantino said Friday.

San Miguel is preparing to start a mobile-broadband service as early as the first half of the year, to challenge market leaders Philippine Long Distance Telephone Co. and Globe Telecom Inc. Talks with Telstra Corp. are ongoing, but San Miguel can proceed even without a partner, Ang said.

Standard Chartered PLC and Bank of Commerce will provide financing to San Miguel’s $1.6 billion, 44-kilometer mass railway project from Manila to Bulacan province, to be built by EEI Corp., Ang said. Revenue from infrastructure, which includes rails and toll roads, may reach P100 billion by 2020 and will account for 20 percent of the business, from below 10 percent now, he said.

The company’s earnings before interest, taxes, depreciation and amortization could hit P200 billion by 2020 if its infrastructure projects are completed as scheduled, Ang said.

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