Diverse Philippine business group San Miguel is always looking to expand and could draw on the country’s newly vibrant stock market for funding.
Acquisitive giant
Source: REUTERS/Vic Kintanar
Members of the Philippine National Police Regional Mobile Group drink beer during a traditional ceremonial toast after their graduation from the “Internal Security Operations Course”, at a police training camp in Sibong.
The Philippines’ San Miguel Corp, one of South-East Asia’s most acquisitive conglomerates, has planned plenty of activity for this year that observers expect to lead to several capital markets deals.
Chairman Ramon Ang has signalled that San Miguel could sell stakes in beer producer San Miguel Brewery and gin distiller Ginebra San Miguel, having told a newswire that he had received bids of US$6bn and US$600m, respectively, for the two businesses.
Ang complained in a recent interview with a Philippine newspaper that San Miguel was sitting on about US$4bn in cash with no use for it yet. The company recently sold its stake in power distributor Manila Electric (Meralco) to the Gokongwei group, which is behind the JG Summit conglomerate, for about US$2.1bn.
Last June, it raised about Ps17.4bn (US$400m) from a block trade in Meralco that was increased beyond the upsize option indicated on the term sheet.
Ang added, however, that San Miguel had been in talks for the past couple of years to acquire a US$10bn regional energy firm. If the acquisition comes to fruition, part of the funding may come from a planned listing of the energy business, SMC Global Power Holdings.
Still, some bankers think that despite Ang’s comments, which have not always been a reliable guide in the past, San Miguel will try to sell its power unit to a trade buyer.
“The power unit IPO won’t be immediate,” said one South-East Asia ECM head. “It’s on the table, but, if the M&A doesn’t work out, they will go down the IPO route.”
A spokesman for San Miguel did not respond to a request for comment for this article.
San Miguel came close to listing SMC Global Power in October 2011, but postponed it after a filing that indicated the maximum IPO size of Ps27.3bn (US$614m). The deal was shelved again in September 2013.
Ang recently revived talk of a US$1bn IPO for the energy business in the first half of this year, with a 49% stake up for sale.
The sale may prove attractive to investors as the two other planned power IPOs in South-East Asia, those of Malaysia’s 1MDB and Malakoff, appear to have been pushed back to 2015, making SMC Global Power’s flotation unique in the region.
“If San Miguel delays it, they’re going to end up with all three going head to head,” said another ECM banker.
Financing growth
Sam Miguel had also planned to list its toll-road business in partnership with Indonesia’s Citra Group in the form of a business trust in Singapore. However, in light of rising yields and a tough market for trusts, the conglomerate is reported to be considering tapping the bond market to bankroll new road projects costing Ps50bn.
Foreign trust listings in Singapore have struggled to gain traction with investors in recent years. Many have had to offer premiums to tempt investors. Planned business trusts containing Indian infrastructure assets have been discussed, but have not mustered enough momentum to launch bookbuilding, while South Korea’s Lotte Shopping has been waiting on the sidelines since February for better market conditions.
Apart from IPOs, San Miguel may try to reinvigorate some of its listed companies with a re-IPO, similar to LT Group’s launch of a large share offering last year, along with an injection of other group assets. The strategy will allow it to introduce new overseas investors to its shareholder base.
San Miguel might not have so many options open to it were it not for the efforts of the Philippine Stock Exchange to force listed companies to comply with its minimum free-float rules.
Before 2013, dozens of companies had been listed with fewer than 10% of their stocks in public hands, but a tough new approach from the PSE threatened companies with suspension if they did not boost their free-floats before the end of 2012. As a result, the exchange is now far more liquid and attractive to foreign investors.
That initiative led to the delisting of San Miguel Brewery in May 2013, a business that is now up for sale. The shares rarely traded, with the free float at a mere 0.6%. San Miguel Properties, also taken private in 2013 after failing to increase the proportion of shares in public hands, looms as another candidate for sale or relisting.
San Miguel’s food-producing subsidiary, SM Purefoods, plans to increase its free float in phases to 49% from the current level of about 15% through the sale of existing shares later this year. San Miguel sold Ps6.9bn of shares in 2012 to comply with the PSE’s minimum requirement.
San Miguel looks set to continue its acquisitive streak this year, and its track record of active capital management raises hopes that some of these deals will lead to ECM action on the newly active PSE.
After some large ECM deals last year, the Philippines is on the radar screen of international funds. It also has been one of the best-performing stock markets in Asia this year – being up 10.1% as of March 11 – after recovering from a rocky second half of 2013, when it fell around 8.9%.
San Miguel is a shrewd enough issuer to make the most of the opportunity.
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