NO regulatory hurdles are seen with the planned preferred share issuance of listed conglomerate San Miguel Corp. (SMC), according to credit research provider CreditSights.
“We don’t foresee SMC to face any material regulatory hurdles for its planned issuance, given SMC’s reputation in the domestic market and that it is a frequent issuer of domestic preferred shares. The new proposed subseries will be the 10th one in SMC’s Series 2 preferred shares program,” CreditSights said in a report sent to the press on Tuesday.
SMC previously disclosed that its board of directors had approved a shelf registration of its Series 2 preferred shares for up to P65 billion at P75 per share, which will be issued over the next three years. The issuance consists of up to 866,666,700 Series 2 preferred shares.
The company’s initial offering will have a maximum issue size of up to P50 billion or 666,666,700 shares.
“We believe SMC will account for them as equity, resulting in no impact to leverage metrics and debt covenants,” CreditSights said.
“We maintain our market perform recommendation on SMC. We think its large, diversified operations and stable fundamentals outweigh its high expansionary capex and extension/refinancing risk of $3.3 billion of perpetuals issued by SMC GP,” it added.
CreditSights said the base case scenario is that SMC will utilize most of the share issue proceeds to support the near-term debt repayments of its power subsidiary SMC Global Power Holdings Corp. (SMC GP).
According to CreditSights, SMC GP’s short-term debt stood at P124 billion as of June 30.
“We maintain our expectation for SMC GP to be heavily dependent on parental financial support for its debt repayment needs, given its consistently negative free cash flows and frail credit profile,” CreditSights said.
“We acknowledge the risk of SMC not prioritizing SMC GP’s debt repayment needs, or allocating a lower-than-expected amount of proceeds to SMC GP. Coupled with low cash flow visibility past 2024 and our expectation that parental support, while available in the near-term, may be unsustainable in the long-term, we remain cautious of non-call risk on the perpetual bonds turning callable in 2025 and 2026,” it added.
Meanwhile, CreditSights said that improvements in SMC’s credit profile and free cash flows could be restrained due to the company’s infrastructure and power expansionary capital expenditure, particularly the Bulacan International Airport.
“We are also concerned about how SMC GP intends to refinance its wall of perps that will turn callable in 2025-2026, which we think will be aided largely by parental support from SMC, but which could be unsustainable in the long run,” CreditSights said.
SMC posted an 18% growth in its first half net income to P23.3 billion on the back of better performances in its beer, spirits, infrastructure, and packaging units.
On Tuesday, shares of SMC at the local bourse dropped P1 or 0.94% to close at P105 apiece. — Revin Mikhael D. Ochave
