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 855.8 billion peso ($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 6.17 billion pesos for the first nine months of the year as a weaker peso quadrupled foreign exchange losses to 10.3 billion pesos. Falling fuel prices cut sales at its oil ventures, paring revenue 15 percent to 504.5 billion pesos. San Miguel’s pretax profit is eroded by more than 5 billion pesos 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 U.S. raises interest rates, we will see a strong dollar," said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc., the largest Philippine lender by assets. “The domestic market remains very liquid and will be accessible for a company like San Miguel." Slumping Peso 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.” Diversification 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. 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 80 billion pesos worth of preferred shares in three years, with an initial batch of 30 billion pesos to be sold this quarter. The company in September raised 33.5 billion pesos 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 (27-mile) 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 100 billion pesos 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 200 billion pesos by 2020 if its infrastructure projects are completed as scheduled, Ang said. http://www.bloomberg.com/news/artic...s-to-halve-dollar-debt-as-peso-falls-ang-says
San Miguel is widely regarded as a very well run company. This is a move that makes sense. The Dollar is widely expected to continue to harden. Many Chinese businesses with Dollar debt are already in deep trouble. The Norwegian kroner has almost halved in value against the Dollar over the past year (not that you will hear that from the anti-EU people)...
Well, that proved to be a very shrewd call by San Miguel! Of course, we know what happened to their ambition to take on Globe and Smart with Telstra, but at least SM did not lose money on it. The only people who lost out were the Filipino public, who are still the "prisoners" of Globe and Smart.
I agree. Telstra never had the chance to compete with Globe and Smart. Both companies provide very expensive prices with slow connections compared to other Asian countries. Hope this gets better soon.
It won't get better unless the Government does something to weaken the oligopolies. I fear this is not amongst your President's priorities. Telstra pulled out (you can Google this) because it was concerned that Globe and Smart were using "unfair" anti-competitive practices. Telstra wanted a guarantee from San Miguel that its investment would be refunded if the project proved impossible to implement and SM decided that they could not risk giving it. A competition law was passed under the last administration but the enforcement agency , the Philippines Competition Commission, is toothless because it is unfunded. You may not like reading Richard Heydarian but he makes reasonable points, here: http://www.huffingtonpost.com/richard-javad-heydarian/philippines-competition-c_b_8012788.html
As an anti-EU person, I must strongly disagree with that. The NOK is currently worth 0.11586 USD, It started the year at 0.11311 and peaked at 0.12543. Looking at it from the other side. USD started the year at 8.84472 NOK, and is currently worth 8,63149 NOK. The bad performance of the Norwegian Kroner occured in the years prior to 2016.
The Chinese are coming. http://www.philstar.com/headlines/2016/10/22/1636102/philippines-china-sign-24-b-deals
In accordance with the finest traditions of the Leave mob, you have not read what I wrote, and you have gone off at half cock. I wrote that in February of this year. It was perfectly accurate at that point. You have set out to make me look like a fool or a liar, but I am neither.
No intention to cause offence to a highly regarded board member, and I apologise for getting the date range wrong. I overlooked the date of your post, the 13th Feb, and will correct my figures accordingly. On the 13th Feb 2016 the USD was worth 8.5954 NOK against a value of 7.594 twelve months earlier, I cannot understand how that equates to the NOK having "halved in value over the past year". Nor can I understand why Brexit is to blame.
