San Miguel aims for record high capital proceeds, to overtake BDO’s

MANILA, Philippines (UPDATED) – The country’s biggest business group is eyeing to tap retail investors to raise more than the proceeds that the country’s biggest bank will.

In an disclosure to the stock exchange on Wednesday, June 13, diversified conglomerate San Miguel Corp. confirmed a report that the it is looking to refinance the costly P72 billion worth of preferred shares that it issued to the government and coconut farmer groups in 2009.

It did not mention an amount, but the statement was issued to clarify an earlier Inquirer report quoting unnamed sources that San Miguel is looking raise up to P80 billion (US$1.9 billion) to overtake the previously announced Sy-led Banco de Oro’s record capital raising exercise.

San Miguel said that, unlike BDO’s share sale plan, it will offer perpetual preferred shares in August, which need the approval of its stockholders scheduled to meet on Thursday, June 14, since this involves an increase in its authorized capital stock.

The perpetual bonds piggybacking on the preferred shares make these hybrid offer with a fixed return attractive since it has features of debt and equity instruments: fixed returns, liquidity in the exchange, lower tax.

The earlier report said the target buyers are those who invest in the Bangko Sentral ng Pilipinas’ special deposit accounts (SDAs) or government bonds worth around P1.57 trillion that, through the years, have come to represent how much excess funds the financial system has.

Coco levy

The preferred shares involved debut on the stock exchange in December 2010 and represent the previously contentious stake that the coconut farmers claimed to be the levy imposed on them by San Miguel’s former chief.

Eduardo “Danding” Cojuangco Jr, the uncle of President Aquino, imposed these coconut levy when he was working with former President Marcos.   

In a muted but controversial move before the 2010 presidential elections, the Supreme Court voted to allow the common shares representing the contested stake of the farmers into preferred shares, now being traded under the symbol SMCP1.

Involved are 753.848 million preferred shares that are still held by the government as trustee of the original San Miguel common shares owned by CIIF companies, representing about 23% stake in the conglomerate. The acronym stands for Coconut Investment Industry Fund. The government, which represented them, used to elect 4 seats in the 15-man board of directors of San Miguel.

The preferred shares do not allow the owners, which the court still has to establish, to vote. In other words, the preferred shares owners, led by the government, gave up their voting rights to become passive stockholders.

San Miguel was then in the thick of its conversion from being a staid food and beverage conglomerate into an aggressive acquirer of energy, telecoms, mining, banking, infrastructure, and recently, airlines, businesses. The farmer groups have been opposing these diversification moves.

One of the carrots for the conversion from a voting common shares into non-voting preferred shares was higher yield. The preferred shares have a fixed return of 8% per annum, unlike the P0.25 to P0.35 per quarter that CIIF companies used to get.

With the planned Series 2 preferred shares issuance, the promised returns will not be as high. – Rappler.com