San Miguel Kicks off IPO Roadshow

San Miguel Brewery could raise as much as $150 million, but most of it will go to its parent, which is spinning off the Philippine brewer

by Anette Jonsson

San Miguel Brewery yesterday kicked off the international roadshow for its initial public offering, which may raise between $148 million and $410 million. The listing-candidate is a spin-off from San Miguel Corporation, the largest food, beverage and packaging company in the Philippines, and comprises the group's domestic beer operations although the actual brands will continue to be owned by the parent.

If successful, it will become only the second Filipino company to list this year after Pespi-Cola Products Philippines and, if priced towards the upper end of the range, it could become the largest IPO in the country since conglomerate SM Investments raised $528 million in 2005. Market participants are also hopeful that a solid debut will help energise the local stockmarket which is down about 20% so far this year, and as a result everyone is watching this deal. Earlier this year, budget airline operator Cebu Pacific Air was in the market with an IPO of up to $288 million, but it was forced to withdraw the deal before pricing after tumbling equity markets led to lukewarm interest from investors.

San Miguel Brewery too is coming to market at a slightly lower valuation than hoped for in March when it lowered its initial filing price range from Ps9.50 to Ps16.30 per share to between Ps8 and Ps15.40—the range that appears in the preliminary prospectus published on the Philippine Stock Exchange website. The initial range is only an indication of the eventual deal size which has to be provided when a company seeks regulatory approval and the official price range is typically set somewhere within this quite wide range. The fact that the company had already lowered the guidance once but was still forced to set the price range at the bottom end of the new guidance is a clear sign that investors remain highly focused on valuations.

The current price range is Ps8 to Ps11, which will give a base deal size of Ps6.16 billion to Ps17.04 billion ($148 million to $410 million). The reason for the wide difference in the deal size is that the company has yet to make a final decision on how many shares it will sell. According to a source, the deal is likely to comprise only 5% of the company, which is equal to the minimum amount of shares on offer and a deal size of $150 million to $200 million. However, a 15% greenshoe could increase it further.

According to the preliminary prospectus, the IPO could be as large as 10% of the company pre-shoe.

Of the total offer, 70% will go to international investors while the remaining 30% will be split between domestic institutions and retail investors. The IPO comprises between 770.5 million and 1.55 billion shares pre-shoe, of which 10% are new and 90% secondary shares sold by San Miguel Corp. The greenshoe is made up of secondary shares only.

Citi and ATR Kim Eng are joint global coordinators and bookrunners for the international offering and ATR Kim Eng is also helping to arrange the domestic portion of the deal together with BDO Capital & Investment Corp.

The price range values the company at 13.7 to 18.8 times this year's projected earnings, which looks reasonable compared with some other regional beer makers like Singapore's Asia Pacific Breweries and Japan's Asahi Breweries, which, according to a source, trade at 2008 P/E multiples of 22 and 20 times respectively.

However, Korea's Hite Brewery and Singapore-listed Thai Beverage both trade at around 14 times, which means the newcomer doesn't look overly cheap. San Miguel Corp. trades at a 2008 P/E of 13 times, but observers agree that the spin-off deserves a higher valuation since it is the "best part" of the group.