San Miguel Corporation
...SMC's Bulacan airport project update

SMC’s Bulacan airport proposal up for ICC review

SAN MIGUEL Corp.’s (SMC) unsolicited proposal for a P700-billion airport in Bulacan province will be up for review on Jan. 11 by the National Economic and Development Authority’s (NEDA) Investment Coordination Committee (ICC).  

NEDA Undersecretary Rolando G. Tungpalan said that the airport will be among priority projects that the agency will be reviewing in the committee’s first meeting this year.

“The San Miguel Airport was discussed in the ICC-Technical Board; we asked DoTr (Department of Transportation) to submit additional information to enable us to validate some of the assumptions the DoTr submitted,” Mr. Tungpalan told reporters last week.

“We have a Jan. 11 ICC-Technical Board before that we would be able to ascertain whether it is ready, whether there is new information that would lead us to sharpen our analysis,” he added.

The airport project’s revenue model will be among the items to be evaluated.

“Certain assumptions need to be amplified, like vital to a decision point. Like revenue sources, for the project as a whole… unsolicited projects assume a certain rate of return. That will be the focus for a Swiss challenge,” Mr. Tungpalan said.

After passing the Technical Board, the proposal will go up the ICC-Cabinet Committee for further deliberation before going through the NEDA Board for the President’s approval.

After approval, the project will then undergo a Swiss challenge, under which competing bids are solicited from other parties who might top the original proposal. The original proponent is then entitled to match competing bids.

SMC has been granted original-proponent status, according to DoTr Secretary Arthur P. Tugade.

The proposed airport in Bulacan involves a 2,500-hectare property with up to six runways, to be configured for about 100 million passengers a year.

Mr. Tungpalan said that if construction started in 2017, the project would have been completed “before the term of the President ends.”

It is one of at least two unsolicited proposals for a new airport outside Metro Manila but within surrounding provinces, as the government looks into establishing another gateway to decongest the Ninoy Aquino International Airport (NAIA).

The other proposal is by All-Asia Resources & Reclamation Corp., the Tieng family’s team-up with Belle Corp., for a $50-billion airport and economic zone at Sangley Point in Cavite — which has yet to complete feasibility studies for ICC to review.

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...San Miguel pala nakakuha ng C-6? Smile


Meanwhile, the government and concessionaire San Miguel Corp. (SMC) broke ground yesterday on Phase 1 of the SEMME or the C-6 Expressway Project.

The project is a 34.024-kilometer, six-lane, combined elevated and at-grade expressway with two directional traffic flow. It will start in the south with a connection to the existing Skyway Stage 1 in FTI, Taguig City, and will terminate in Batasan Complex in Quezon City. It eventually be linked to the North Luzon Expressway. Once completed, travel time from Bicutan, Taguig to Batasan, Quezon City will be reduced to 35 minutes.

Construction of the SEMME is targeted to start in April 2018, with Phase 1 targeted to be completed in 2020.

The project will be undertaken by SMC unit Citra Intercity Tollways, Inc.

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SMC food unit to conduct follow-on offering by Q2

SAN MIGUEL Food and Beverage, Inc. (SMFBI) looks to conduct a follow-on offering by the second quarter of 2018 in order to meet the minimum public float of 15%.

Diversified conglomerate San Miguel Corp. (SMC) is currently consolidating its food and beverage businesses Ginebra San Miguel, Inc. (GSMI) and San Miguel Brewery, Inc. (SMB) under San Miguel Pure Foods Company, Inc. (SMPF), which is being renamed SMFBI.

After the consolidation, SMFBI will have a public float of 4.3%, way below the current floor of 15% for listed companies.

“The company is targeting 15% which is the minimum requirement. And then we will decide later on if there is an additional follow-on (offering) that is needed,” SMPF President Francisco S. Alejo III said during a special shareholders’ meeting in Mandaluyong City on Thursday.

SMC Chief Finance Officer Ferdinand K. Constantino said they look to attract a combination of foreign, institutional, and domestic investors for the issuance.

Mr. Constantino noted the surviving company can book up to P245 billion in revenues this year,  with P120 billion coming from food, P100 billion from beer, and the remaining P25 billion from GSMI.

On the other hand, SMPF secured shareholder approval for various transactions relating to the consolidation of SMC’s businesses during the special stockholders’ meeting. Among these are the changes in SMPF’s corporate name to SMFBI and the change in its primary purpose to include the operations of the liquor and brewery businesses.

Shareholders also approved SMPF’s acquisition of SMB and GSMI from SMC through a share swap transaction, valued at P336.35 billion for a total of 7.86 billion common shares in SMB and 216.97 million common shares in GSMI.

“The company will issue 4,242,549,130 common shares to SMC valued at P79.28 per share, totaling P336, 349,294,992.60,” SMPF said in a presentation.

The shares resulting from the share swap transaction will also be listed at the PSE.

The company has also been given the go-signal to conduct a tender offer for SMB and GSMI shares held by its minority shareholders. This move, however, will only be done if the Securities and Exchange Commission requires the company to do so.

Mr. Constantino said the consolidation of SMC’s traditional businesses will provide value proposition to investors, as it can be used as a gauge for the country’s food and beverage sector.

“It will be attractive to investors, because there is no other food and beverage company in the Philippines. It will be a good proxy for the Philippine environment… Malaki value nun (The value is significant), because there’s a big demand for that,” Mr. Constantino told reporters in a briefing after the special shareholders’ meeting.

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SMC’s Bulacan airport proposal remains viable

San Miguel Corp.’s Bulacan airport proposal remains a viable project, but the National Economic and Development Authority (NEDA) is still seeking more information on the financial aspect of the project before it advances in the approval process.

The proposed P700-billion international airport project in Bulacan will cover around 2,500 hectares of which 1,168 hectares will be an airport complex, while the remaining 1,332 hectares will serve as a city complex. The gateway is expected to be completed in six years upon approval.

Socioeconomic Planning Secretary Ernesto Pernia said the project – which is under review by the technical board of the NEDA Investment Coordination Committee (NEDA-ICC) – passes the so-called hurdle rate or the minimum rate of return required to make the investment worthwhile.

Clarifications, however, are sought on the financial rate of return of the project which would give the government a clearer picture of the project’s profitability.

“There are questions on the financial rate of return. What is the basis? Does it only include income from the airport or also outside the airport? Because that is a large area,” he said in a recent interview. “That has implications on the financial and fiscal aspects of the project which is the concern of the Department of Finance.”

Pernia said NEDA is taking greater care in the evaluation of the project because it is an unsolicited proposal from the private sector, and as such must make sure the sustainability of the project.

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“It seems viable… The main criterion for economic evaluation is that it passes the hurdle rate,” he said. “But we do not only look at the economic return, we also look at the financial return because this is an unsolicited proposal from the private sector.”

Another unsolicited project that is currently being reviewed by the ICC technical board is the East West Rail Project of East West Rail Corp and Alloy MTD Group.

The rail project, which was endorsed by the Philippine National Railways (PNR), entails the construction and operation for 30 years of a nine-kilometer, 11-station elevated Light Rail Transit (LRT) line that would traverse Diliman, Quezon City to Lerma, Manila.

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SMC gets top credit rating for P30-B fixed-rate bonds

DIVERSIFIED conglomerate San Miguel Corp. (SMC) secured the highest credit rating for its planned P30-billion fixed-rate bond issuance, a local debt watcher said. 

In a statement released Tuesday, the Philippine Rating Services Corp. (PhilRatings) said it has assigned a PRS Aaa issue rating for SMC’s proposed bond offering. This represents the highest rating in the debt watcher’s credit rating scale, indicating the company’s ability to meet its financial obligations.

PhilRatings also gave the bond issuance a stable outlook, which means that the credit rating is unlikely to change in the next 12 months.

The P30-billion fixed-rate bonds is the third tranche of SMC’s three-year debt securities program of up to P60 billion. The first tranche worth P20 billion was listed at the Philippine Dealing and Exchange Corp. on March 1, 2017, which consisted of P6.68-billion bonds due 2022 at 4.8243% per annum, P7.29 billion due 2024 at 5.2840%, and P6.022 billion due 2027 at 5.613%.

The second tranche of the debt securities program, meanwhile, was launched on April 7, 2017, where SMC raised P10 billion from the sale of five-year bonds at 5.1923% per annum.

The bond issuances are among SMC’s refinancing activities in an effort to temper the company’s foreign exchange losses, as the Philippine peso is expected to continue its depreciation. On Tuesday, the local currency depreciated by 23.5 centavos to close at P51.420 against the dollar.

PhilRatings considered SMC’s operating businesses, income streams, and cash flows in coming up with the credit rating. The company booked a net income of P20.9 billion in the first nine months of 2017, following a 20% increase in revenues to P597 billion during the period. 

The debt watcher said SMC’s financials are expected to further improve with the completion of projects in the energy and infrastructure sector.

PhilRatings also noted the strength of SMC’s core businesses in food and beverage, fuel and oil, and infrastructure. The company’s subsidiaries also include investments in energy and packaging. 

“SMC and its subsidiaries’ strong market position, its solid track record and continuous efforts to manage its debt position, backed by growing market demand and supported by a robust domestic economy, makes SMC well prepared for significant future growth,” according to PhilRatings.

Established originally as a single brewery in the Philippines in 1890, SMC now has over 100 production facilities in the Asia-Pacific region, employing more than 23,000 employees. Amid its diversified product offerings, SMC President and Chief Operating Officer Ramon S. Ang last year announced his intention to enter the electronics business in the future.

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SMC sets timetable for P30-B bond offer

DIVERSIFIED conglomerate San Miguel Corp. (SMC) has set the listing of its P30-billion fixed rate bond issuance this March. 

In an investors’ briefing in Mandaluyong on Tuesday, China Bank Capital Corp. President Ryan Martin L. Tapia said the issuance will run from March 2 to 8, with listing at the Philippine Dealing and Exchange Corp. on March 15. The offer will have a base size of P20 billion and over-allotment option of up to P10 billion, 

Prior to this, the company will announce the interest rate for the bonds on March 1, with final allocation to be disclosed on the same date.

Included in the offer are five-year series E bonds due 2023, seven-year series F bonds due 2025, and 10-year series G bonds due 2028.

China Bank Capital Corp. is one of seven banks that SMC has engaged to arrange the offer. The others are BDO Capital and Investment Corp., BPI Capital Corp., First Metro Investments Corp., ING Bank, SB Capital Investment Corp., and Standard Chartered Bank.

Local debt watcher Philippine Ratings Services Corp. assigned a Prs AAA rating for the issue — the highest on its credit rating scale — which indicates the issuer has the capacity to meet its financial obligations. The company also gave the issue a stable outlook, meaning the rating is unlikely to change in the next 12 months.

The bond offer is the third tranche of SMC’s shelf registration program registered at the Securities and Exchange Commission worth P60 billion. The company raised P20 billion during the first tranche’s listing last March 1, 2017, and P10 billion from the second tranche last April 7.

The company has been conducting refinancing activities as a hedging mechanism against foreign exchange losses, given expectations on the Philippine peso’s continued depreciation. On Tuesday, the peso was valued at P51.46 against the dollar.

SMC’s attributable profit stood at P20.9 billion in the first nine months of 2017, 19% lower year on year. Revenues, meanwhile, stood at P596.9 billion for the period.

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...bilyones na ngayon ang usapan sa mga conglomerates Smile

San Miguel to spend P700 billion in next 5-7 years

DIVERSIFIED conglomerate San Miguel Corp. (SMC) is spending around P700 billion in the next five to seven years to further grow its infrastructure, fuel and oil, food and beverage, and power businesses.

“Roughly about P700 billion in the next five to seven years. That does not include the new airport project that is being evaluated by the government today along Manila Bay in Bulacan province,” SMC Chief Financial Officer and Senior Vice-President Fernando K. Constantino said during an institutional investors’ briefing for its P30-billion bond offering in Makati City late Tuesday.

This capex program has been in place since 2015, Mr. Constantino told reporters after the briefing.

Included in the capex program is an allocation of P56 billion to P60 billion for the food business in the next three years. The beer segment will also corner a large pie of the spending program as it builds two new breweries in the next two to three years.

The construction of big ticket projects such as Boracay airport, the Stage 3 connector road, C-6 expressway that will connect Taguig City to Quezon City, the Metro Rail Transit Line-7, and bulk water project in Bulacan, will be accounted for in the capital spending budget.

For its power business, Mr. Constantino said 300 megawatts (MW) is now on stream, while 700 MW will be completed in the following years.

SMC Senior Vice-President and Head of Treasury Sergio G. Edeza cited various strategies when asked how the company looks to raise funds for the capex.

“It can be in different forms, it can be bonds, it can be notes. All the avenues available to us,” Mr. Edeza said, with Mr. Constantino adding it can be internally generated, given SMC’s healthy cash flow.

In a presentation to investors, Mr. Constantino said the company will grow the food business so that it will account for 21% of revenues by 2020, from a 16% contribution in 2016.

Petron Corp. is expected to continue to contribute bulk of revenues at 44%, although lower than the 49% recorded in 2016.

The beverage segment will remain at a level of 17%, same as power with 11%. The infrastructure business will contribute 4% by 2020 from 3% in 2016, while packaging will account for 3%, against its previous level of 4%.

Meanwhile, the company is currently raising P20 billion in a fixed rate bond offering this March, with an overallotment option of up to P10 billion to repay its existing obligations. The company has tapped seven large banks to manage the offer, namely Standard Chartered Bank, BDO Capital and Investment Corp., BPI Capital Corp., China Bank Capital Corp., First Metro Investments Corp., ING Bank, and SB Capital Investment Corp.

The conglomerate recorded a net income attributable to the parent of P20.9 billion in the January to September 2017 period, 19% lower than the same period in 2016, amid a 19% uptick in revenues to P596.9 billion.

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SMC Global’s acquisition of Masinloc power plant gets go-signal from PCC

THE Philippine Competition Commission (PCC) has approved a San Miguel Corp. (SMC) subsidiary’s acquisition of the 630-megawatt (MW) Masinloc coal-fired power plant in Zambales.

In its decision dated Feb. 23, 2018, the antitrust watchdog said the acquisition of the power plant by SMC Global Power Holdings Corp. does not result in a substantial lessening of competition in the relevant markets.

The approval comes after SMC Global announced in December last year that it had reached a share purchase agreement with the two equity holders of the power plant’s owner, Masin-AES Pte. Ltd. in a deal worth $1.9 billion.

In clearing the deal, PCC cited three reasons, first: “There remain sufficient post-acquisition competitive constraints from competitors in the power generation and retail electricity supply market.”

“There appears neither increased ability nor incentive to engage in anti-competitive foreclosure, post acquisition,” it added.

Thirdly, the PCC said: “The transaction is not likely to substantially increase the likelihood that the parties will engage in anti-competitive coordinated behavior.”

PCC said it rendered its decision based solely on the facts and circumstances of the transaction disclosed by SMC Global and AES Corp.

The proposed transaction involves the acquisition by SMC Global of a 51% and 49% equity interests of AES Phil Investment Pte. Ltd. and Gen Plus B. V. respectively, in Masin-AES. It also involves the acquisition of a 100% equity interest of AES Corp. in AES Transpower Pte. Ltd., and 100% equity interest of AES Phil in AES Philippines, Inc.

SMC Global’s portfolio in the power generation includes Sual Power Plant in Sual, Pangasinan; San Roque Hydroelectric Multipurpose Power Project in San Manuel, Pangasinan; Ilijan Power Plant in Ilijan, Batangas, among others.

PCC said SMC Global intends to improve its baseload capacity to provide affordable and reliable supply of power to its customers, while AES Corp. aims to re-shape its global portfolio of businesses and markets to be consistent with its new strategy.

“As to Gen Plus B.V., their objective in pursuing the transaction is to focus on its existing power plant portfolio in the Luzon market and to pursue new development and investment opportunities for thermal and renewable power plants in the Philippines,” it added.

As a result of the transaction, SMC Global will become the 100% owner of each of Masin-AES, AES Transpower and AES Philippines. 

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SMC plans to build 5-6 new breweries

DIVERSIFIED conglomerate San Miguel Corp. (SMC) is planning to put up five to six new breweries worth around $250 million each in the country, in a bid to bring down logistics costs and boost profitability for the beer business.

SMC President and Chief Operating Officer Ramon S. Ang said the breweries will have a capacity of two million hectoliters each. He identified several locations for the breweries — Sta. Rosa, Laguna; Quezon province near the Bicol area; Cagayan de Oro; Zamboanga; and near the boundary of La Union and Pangasinan. “We will be putting up additional five more breweries in the Philippines. Ang investment ng brewery is mga $250 million for each. And with that, we will be able to bring down the logistics cost,” Mr. Ang told reporters after the company’s annual shareholders’ meeting in Pasig City on Thursday. Logistics in the brewery business currently account for 30% of total costs, he said.

“We think the brewery profitability will keep on growing double digit, every year by at least 20%… Operating income of the beer business to grow by 20% per year. Because we are coming from a very low profit, higher taxes, low volume,” Mr. Ang explained.

SMC’s beer business is under San Miguel Brewery, Inc., which is currently being merged with Ginebra San Miguel, Inc. and San Miguel Company, Inc. under one unit called San Miguel Food and Beverage, Inc.

For the food business, SMC is currently completing six feed mills with a capacity of one million tons per year by the end of 2018. The feed mills are located in Mariveles, Bataan; Mabini, Batangas; Cagayan de Oro; San Ildefonso, Bulacan; Mandaue, Cebu; and Iloilo City.

SMC will also be building a facility that will manufacture canned cooked meat brand Spam for export in the Asia-Pacific region. The plant will have a capacity of 150,000 tons per year.

“For the region ang license natin, this license to manufacture Spam has been with Pure Foods for 20 years. Kaya lang hindi naaasikaso, ngayon lang natin naasikaso magtayo ng planta to produce Spam,” Mr. Ang said.

The breweries, feed mills, and facility for the manufacture of Spam form part of the conglomerate’s plan to build a total of 18 new facilities for the food and beverage business within the next two to three years.

Petron Corp., which is SMC’s biggest contributor to revenues, is also in the process of expanding its capacity by 90,000 barrels a day. This is expected to bring total capacity to 270,000 barrels a day by 2020.

Petron currently has a station network of 3,000. Of this, 2,400 are located in the Philippines, while 600 are in Malaysia. The company earlier said that Petron ranks third in terms of market share in Malaysia.

The expansion is also part of SMC’s commitment to spend P742 billion in capital expenditures from 2017 to 2019.

For its expansion overseas, Mr. Ang said the company is looking at opportunities in Malaysia, following the assumption of Prime Minister Mahathir Mohamad into office last May.

“The trust of Mahathir is to bring down the level of debt, so therefore I think they will be doing a lot of privatization…If there’s an opportunity, we will take a look at power sector in Malaysia,” Mr. Ang said.

SMC’s recurring profit grew by a third to P19.4 billion during the first quarter of 2018, supported by a 20% jump in consolidated revenues to P234.3 billion for the period.

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SMC Global Power to raise P15B from bond offer

SMC Global Power Holdings Corp. intends to raise P15 billion from the issuance of fixed rate bonds to refinance debt.

In a statement over the weekend, Philippine Rating Services Corp. (PhilRatings) said it assigned SMC Global Power a PRS Aaa rating for its proposed bond offering, which represents the last tranche of its three-year shelf registration of up to P35 billion.

PRS Aaa is the highest credit rating under the local debt watcher’s long-term issue credit rating scale. This indicates that SMC Global Power has an “extremely strong” capacity to meet its financial obligations.

The proposed bonds were also given a stable outlook, which means that the rating is unlikely to change in the next 12 months.

The power generation arm of diversified conglomerate San Miguel Corp. (SMC) has so far issued P20 billion worth of bonds from its shelf registration program, with P15 billion issued in July 2016 and P20 billion last December. Both outstanding issuances retained their PRS Aaa rating.

In coming up with the ratings, PhilRatings took into account SMC Global Power’s market position, support from SMC, stable earnings and cash flows, as well as its capacity to expand.

“SMC Global Power benefits from the extensive network, keen understanding of the Philippine economy and management expertise of SMC. Furthermore, SMC provides management and support services to SMC Global Power, in areas such as human resources, corporate affairs, legal, finance, treasury and other functions,” the debt watcher said.

SMC Global Power currently has a combined capacity of 4,153 megawatts (MW), sourced from a diversified mix of fuel supply including natural gas, coal, and hydropower. Its existing portfolio includes the 218-MW Angat Hydroelectric Power Plant, the 450-MW greenfield power plant in Limay, Bataan, the 300-MW greenfield power plant in Malita, Davao, and the 640-MW Masinloc power plant in Zambales.

It also acts as the Independent Power Producer Administrator (IPPA) for the Sual, Ilijan, and San Roque power plants.

The company’s combined capacity comprises 19% of the power supply in the National Grid, 25% of the Luzon grid, and 9% of the Mindanao grid.

“SMC Global Power is well-positioned to take advantage of the robust electricity demand outlook, in line with the country’s continuing economic growth. SMC Global Power’s existing capacity is still below the power market share limitations set by the Energy Regulatory Commission, giving the company enough room for portfolio expansion,” according to PhilRatings.

The debt watcher also noted it will be monitoring the legal dispute between SMC Global Power’s subsidiary, South Premier Power Corp. and the Power Sector Assets and Liabilities Management Corp. on the Ilijan IPPA agreement. The two parties have differing interpretations on certain provisions on generation payments from the facility.

The case is now pending with the Court of Appeals.

“Amidst the ongoing dispute, SPPC continues to be the IPPA of the Ilijan power plant. PhilRatings shall continue to monitor developments in relation to this case and its subsequent resolution,” it said. 

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