Bloomberg News

San Miguel Raising $4 Billion to Fund Brewer Transformation (1)

July 14, 2013

San Miguel Corp. President Ramon Ang

San Miguel Corp. President Ramon Ang said, “We were really lucky with the Meralco purchase.” Photographer: Julian Abram Wainwright/Bloomberg

San Miguel Corp. (SMC)’s plan to raise about $4 billion by selling power assets brings it closer to funding the Philippines’ biggest company’s expansion into industries and infrastructure.

The Southeast Asian nation’s most acquisitive company plans to spend $35 billion to complete President Ramon Ang’s strategy to transform itself from a brewer and foodmaker into an investor in energy, mining, airlines and roads.

San Miguel, which started making beer before the country declared independence from Spain more than 100 years ago, has made more than $5.6 billion worth of purchases since 2008, when it announced an investment in Manila Electric Co. (MER) That stake has more than tripled in value, while Ang acquired control of Petron Corp. (PCOR), the country’s largest refiner, and bought three of the nation’s biggest power plants.

“Ang has been an opportunistic entrepreneur and he has seen better opportunities so he’s selling assets that have already paid off to fund these new ventures,” said Marvin Fausto, who oversees about $20 billion as Manila-based chief investment officer at BDO Unibank Inc. (BDO) “He’s moving assets from one to the other, liquidating those where he has made money, and financing opportunities that will eventually pay off like toll roads and airlines.”

Manila Electric, also known as Meralco, rose as much as 0.7 percent to 319 pesos and traded at 317.40 pesos as of 10:21 a.m. in Manila. The stock has climbed 22 percent this year, and more than tripled in 2009, the year after San Miguel announced its purchase. San Miguel traded as much as 1.2 percent lower at 88.50 pesos and has lost 16 percent this year.

Asset Sales

Completion of Ang’s plan to sell a 32.8 percent stake in Manila Electric and 49 percent of SMC Global Power Holdings Corp. would bring his asset sales in the past seven years to about $10 billion, according to data compiled by Bloomberg.

“If we can sell something, good,” Ang said in an interview at his office in Manila on July 12. “We’re not in a hurry. Does San Miguel need the money? No. We can always borrow to fund any opportunity.”

A San Miguel exit from Meralco could be the third-largest asset sale in the Philippines, according to data compiled by Bloomberg.

“We were really lucky with the Meralco purchase,” Ang said at San Miguel’s Manila headquarters. “I meet management and we sit down and plan,” he said, when asked what he does first after a takeover. “I make sure I’m nice to them.”

Power Generation

Unit SMC Global Power is the country’s biggest electricity generator with assets accounting for a fifth of the nation’s capacity. The generation unit’s equity value is at least $1.6 billion, Ang said, declining to say how the sale will be made.

Meralco, which serves a quarter of the country’s population in an area that accounts for half of gross domestic product, is returning to generation after a four-decade hiatus with plans to build 2,700 megawatts of coal- and gas-fired plants. The company is 48.3 percent owned by units of billionaire Anthoni Salim’s First Pacific Co. Ltd.

“Ang is probably trying to rationalize some of these investments because there may be some investment opportunities that are more suitable,” said Astro del Castillo, managing director at Manila-based First Grade Holdings Inc. “He was in an aggressive buying spree during the crisis years when cash was king.”

San Miguel’s biggest sale was of Australia’s National Foods to Japanese brewer Kirin Holdings Co. for about $2.6 billion, including debt, in 2007. It had acquired control of the foodmaker for about $1.5 billion in 2005. Unit San Miguel Brewery is 48 percent owned by Kirin, which paid about $1.5 billion in 2009.

Tripling Return

San Miguel seeks to boost revenue to $50 billion in five years. Sales rose 30 percent to 699 billion pesos ($16 billion) last year, missing a $20 billion goal. Oil and energy account for 60 percent of sales, Chief Finance Officer Ferdinand Constantino said.

The company has announced 40 acquisitions worth about $8 billion since 2000, according to data compiled by Bloomberg, as it expanded into heavy industries to triple the return on equity it used to earn from food and drinks alone. Its most recent purchase was 35 percent of Northern Cement Corp. for 3 billion pesos.

San Miguel’s profit in the first half of the year “won’t be good” as declining fuel prices hurt Petron, Ang said. Fuel and oil accounted for 62 percent of sales in the first quarter, according to data compiled by Bloomberg.

The company and its units have 272 billion pesos worth of debt due by 2018, while cash and near-cash items total 152 billion pesos, the data show.

“Our debt levels are too low,” Ang said.

Bank of Commerce, controlled by San Miguel, plans to sell new shares to a new investor, boosting its capital to 32 billion pesos from about 19 billion pesos, Ang said, after a sale to CIMB Group Holdings Bhd (CIMB) was scrapped. It may sell 40 percent of the Manila-based lender’s expanded equity, he said.

Philippine Air

Philippine Airlines Inc., a venture of San Miguel and billionaire Lucio Tan, plans to fly daily to five cities in Europe this year after the European Union took the country off its blacklist, Ang said.

The company paid the government 11 billion pesos for a contract to build an elevated road connecting Manila’s airport to several casinos, has been qualified to bid for a 17.5 billion-peso airport in Cebu province and plans to build a $6 billion airport in Manila. It has rail and road projects that will connect the capital to nearby provinces.

San Miguel started its brewing business eight years before the Philippines declared independence from Spain in 1898. The country later became a colony of the U.S., which only recognized its independence after World War II.

To contact the reporters on this story: Frank Longid in Hong Kong at flongid@bloomberg.net; Cecilia Yap in Manila at cyap19@bloomberg.net

To contact the editor responsible for this story: Clarissa Batino at cbatino@bloomberg.net


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