Philippines: San Miguel eyes earlier beer sale to enter new businesses

San Miguel Corp., Southeast Asia's biggest food and drinks group, is bringing forward the planned flotation of its domestic beer business and will raise $500 million in a hybrid bond issue to help fund its entry into new businesses, Reuters reported June 21.

The Philippines group stunned investors last month when it said it would spin off its beer and regional packaging divisions and invest in mining, infrastructure and power.

Critics said San Miguel has no prior experience in heavy industry, and spinning off its core businesses will restrict the parent company's access to profits and cash flow.

San Miguel President Ramon Ang's comments in an interview with Reuters on Thursday indicated the company has accelerated its programme to follow a new path. Previously, the listing of the flagship beer business was scheduled for next year.

Moody's has put the company's rating on review for a possible downgrade, while Standard & Poor's has also placed a watch on its rating with negative implications.

"We are quite familiar with the power structure, more than most of the players in that sector," Ang, a mechanical engineer by training, told Reuters on the sidelines of an investment conference on the resort island of Mactan.

"We have been operating our own power plants for some time. I think they should be talking to me first and try to understand our strategy."

A consortium including Citigroup and HSBC was handling the $500 million hybrid bond issue, which would come through towards the end of the year, Ang said.

On the rating agency actions, Ang said: "I think there's no problem. We just have to explain our strategy to them."

Ang later told reporters that the domestic beer business, the profit driver of the Philippines' second-largest listed firm, and the packaging unit would be spun off this year.

Analysts say the beer unit contributes about 40 percent of operating income while packaging contributes about 7-8 percent. San Miguel generated overall operating profit last year of 20.6 billion pesos (US$447 million).

The company, which has a total market value of $4.975 billion, has previously said the beer unit will form a strategic partnership with Japan's Kirin Brewery (2503.T: Quote, Profile, Research), which will help it market San Miguel beer overseas. Kirin already owns around 20 percent of San Miguel.

Ang said San Miguel would retain a 51 percent stake in both new companies, but added that no investment bank had yet been given a mandate for the flotations.

San Miguel has not finalised where it will focus in its new ventures, but Chairman Eduardo Cojuangco has said it was studying a possible bid for a multi-billion dollar licence to run the national grid, as well as possible bids for state-run power plants.
Earlier this year, Ang and two local businessmen formed a consortium to bid for the National Transmission Corp. (Transco) licence, but the auction failed and a fresh round of bidding is expected later this year.

Transco has been valued at 138 billion pesos ($2.9 billion), but it needs about $850 million over the next five years for upgrades and expansion.

San Miguel's B shares, open to all investors, were flat at 75 pesos, while its A shares, restricted to local investors, were unchanged at 68.50 pesos. The main Manila stock index (.PSI: Quote, Profile, Research) was down 1 percent by 0230 GMT.

(US$=46.07 pesos)

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