San Miguel gets rating cut for expansion plans

MANILA, Philippines - Debt watcher Standard & Poor’s (S&P) lowered its credit ratings for San Miguel yesterday but Asia’s largest food and beverage conglomerate remained set on expanding beyond its core businesses. The long-term foreign currency corporate credit rating downgrade, to ‘BB-’ from ‘BB’ with a stable outlook, “reflects the weakening credit profile of San Miguel as a result of recent actions taken by the company," S&P said in a statement. Company moves to cut its stake in the “core domestic brewery business" and venture into the local utilities and infrastructure sectors mean San Miguel’s being “exposed to [a] more uncertain operating and regulatory domestic environment," S&P credit analyst Allan Redimerio said. San Miguel officials were not immediately available for comment but earlier in the day its president and CEO, Ramon S. Ang, said the firm was now looking at a highway venture after dipping into the banking, water, energy, and telecommunications businesses. Mr. Ang said San Miguel had been invited by Consunji-led DMCI Holdings, Inc. to help build the 88.5-kilometer Tarlac-La Union Expressway after the latter ended talks with another prospective partner. “We have not spoken to them (DMCI) yet [but] we will see each other next week," he said. The 10-developer consortium led by DMCI terminated talks with Metro Pacific Investments Corp. (MPIC) in January and is now soliciting proposals from several firms, one of which will be chosen to replace MPIC. DMCI said it hoped to start the project in April. Mr. Ang said the company was also in the final stages of talks to acquire Express Telecommunications Co. (Extelcom) and if necessary would create a holding firm to consolidate all of its telecommunication businesses. “We are in the final stage of acquisition. It’s about to be finished, probably within the month," he said. “We are lucky to have a very big partner, Qatar Telecom, Inc. (Qtel) in our telecommunication business. It is hard to get a good partner that has a financial muscle. We believe that this telecommunication business has a good future," Mr. Ang said. Debt-ridden Extelcom is currently under corporate rehabilitation and has an outstanding debt of P9 billion. The company is a joint venture between Lopez-led Bayan Telecommunications, Inc., Scott Sproule Cellular and Digital Excel Development, and Mayon Holdings Inc. San Miguel’s partnership with Qtel started the former’s foray to the telecommunications business, allowing it to acquire a 20 percent stake in Liberty Telecommunications, Inc. It aims to fully acquire the firm and is planning a tender offer. Mr. Ang has been elected chairman of Liberty while three Qtel executives have been appointed to the firm’s board. “Once we have agreed on the business model and the arrangement with Qtel, we will immediately have to do a tender offer," Mr. Ang said. San Miguel, however, said it had yet to determine how much exactly it would spend for the telecommunication business. “At the moment, we are still checking on how much capital we really need for this telco investment, so we are still finalizing the finances," Mr. Ang said. San Miguel surprised the market two years ago by announcing that it wanted to expand beyond its core food and beverage businesses. Since then it has taken stakes in Bank of Commerce and Manila Electric Co. and is the process of buying a majority of Petron Corp., the country’s biggest oil refiner. Last month, the company also submitted an unsolicited proposal to the government for the development of the Laiban Dam. Ratings firms raised concerns about the firm’s plans and yesterday S&P reiterated this, saying it believes the sectors San Miguel are venturing into “are capital intensive, riskier, and have lower profit margins than San Miguel’s traditional beer business". Japanese partner Kirin Holdings Co. Ltd.’s move to take a significant stake in San Miguel Brewery Inc., in particular, is expected to weaken San Miguel’s “credit metrics". San Miguel Brewery is in the process of finalizing a P38.8-billion bond offer, the proceeds of which will be used to purchase domestic beer brands and property assets from its parent. San Miguel has said it would use the money for its own acquisitions. Moody’s Investor Service in 2008 downgraded San Miguel’s debt rating to Ba2 from Ba1 due to lingering uncertainty over the food and drinks giant’s diversification plans, and at the end of last year changed its outlook to negative from stable following the Petron acquisition’s announcement. S&P’s statement was issued after the stock market closed. San Miguel’s ‘A’ shares closed up at P45 while its ‘B’ shares gained to P44.50. San Miguel Brewery were unchanged at P8.50. - BusinessWorld with a report from Reuters