San Miguel eyes aggressive expansion in energy industry

MANILA, Philippines – San Miguel Corporation (SMC) is eyeing further expansion in the energy industry amid the anticipated power supply deficiency in 2015.

During the listing of Petron Corporation’s 10 million preferred shares worth P10 billion ($222.47 million*) on Monday, November 3, SMC president Ramon S. Ang shared his plans for both oil and power business units of the diversified conglomerate.

For oil, Petron, the country’s leading oil refining and marketing company, is set to further expand overseas, like what it did in 2012 when it acquired ExxonMobil’s downstream business in Malaysia, Ang said.

“We are looking at a possible overseas acquisition but we are being careful,” Ang said in Filipino.

Ang explained that he does not want Petron getting involved in any environmental issues that could affect the company’s performance.

“Usually, there are many environmental issues in running an oil refinery or tank farm such as leaks. If this happens, the cost for clean up operations is expensive,” Ang said.

 While he did not expound on details of its target acquisition, Ang said that it is better for Petron to plan its moves carefully and thoroughly.

To date, Petron’s financial performance is improving as it posted P3 billion ($66.76 million*) in net income. The growth was attributed to higher sales volumes from both its Philippine and Malaysian operations. 

Petron Malaysia, specifically its Jalan Selayang station, is the first built by Petron from the ground up when the Philippine refiner started to acquire in early 2012 the publicly-listed Petron Malaysia Refining and Marketing Bhd, Petron Fuel International Sdn Bhd, and Petron Oil (M) Sdn Bhd – these 3 companies combined represent the single largest investment by a Philippine company.

Asked how Petron will conclude the year, Ang said, “[It] looks like it should be at par with last year.”

In 2013, Petron posted profits of P5.1 billion ($113.46 million), 186% higher than in 2012.

Favorable reception

As for its Philippine Stock Exchange (PSE) listing on Monday, the issue was oversubscribed, attributed to the favorable reception of the investment community.

“The strong response to our offering signals the trust and confidence of the investment community in the growth prospects of the company and its viability over the long-term,” Ang said.

Petron previously disclosed that proceeds of the offering will be used to redeem the P10 billion ($222.47 million) preferred shares it issued in 2010.

Power plant construction 

For its oil business, SMC’s SMC Global Power Holdings Corporation will construct a new power plant in Cebu.

“We will be building a power plant in Cebu to cater to the Visayas market. We are looking at 300-megawatt (MW) coal power plant using Circulating Fluidized Bed (CFB) technology, and eventually will build it up to 900MW,” Ang shared.

The Department of Energy (DOE) has been informed of SMC’s plans and it may approve the planned power facility before the year ends, Ang said.

SMC Global Power, which ventured in the power sector in 2009, owns and operates the Sual, Ilijan, and San Roque power plants that generated a total of 15,250 gigawatt-hours (GWh) of electricity in 2012.

In only 4 years, SMC Global Power became one of the largest independent power generation companies in the country, with an installed capacity of 2,545MW.

When asked for comment, Energy Secretary Carlos Jericho Petilla welcomed SMC’s planned investments here and abroad. “Any form of investment in power is welcome, especially merchant plants which are built even without any prior off take,” Petilla said in a text message.

Petilla’s office has yet to validate whether to include SMC’s power projects in the committed or indicative list.

The diversified conglomerate is also constructing a 600-MW coal-fired power plant in Barangay Lamao, Limay, Bataan that will come onstream in 2016 and a 300-MW coal-fired Malita power plant in Davao City in 2017.

“RSA (Ramon S. Ang) is very bold. He builds plants even without offtake and financial closing. We should have more of his kind,” Petilla said.

SMC’s future investments are expected, Astro del Castillo of First Grade Holdings, Inc said. “Mr. Ang is known to still be on an expansion mode. Not really a surprise. Such investment is timely given the opportunities in energy,” he said.

Apart from power plant construction, SMC also forayed into power distribution through Albay Electric Cooperative (ALECO). It is also pursuing a team up with K-Water Resources Corporation of Korea for the 218 MW Angat hydro power plant project in Bulacan.

“Hopefully, within 30 days, the partnership with K-Water will be affirmed,” Ang said.

SMC eyes Lafarge Republic’s assets

Ang also said that SMC is “seriously looking” at the cement assets to be sold by Lafarge Republic Inc.

“We are looking at it. We are seriously looking at it. It will be a big transaction if ever,” Ang shared.

However, Ang did not say if San Miguel or his personal cement company Eagle Cement Corporation will be doing the acquisition.

Lafarge Cement is reportedly planning to sell its assets as part of the planned merger between Holcim Ltd. and Lafarge S.A.

Holcim Philippines previously said the company will conduct a financial and technical study on these assets before finalizing the acquisition plans. The study will be completed by mid-2015.

Last year, San Miguel ventured into the cement business with the P3-billion ($66.77 million) acquisition or 35% of Northern Cement Corporation, a company personally owned by San Miguel’s chairman and CEO Eduardo “Danding” Cojuangco Jr.

Northern Cement was established by Cojuangco on February 10, 1967, and used to be the country’s leading cement manufacturer.

San Miguel’s strategy to acquire a cement company is in line with its plan to further expand its infrastructure portfolio.

Not shortlisted for UK’s United Biscuits

As SMC is on an expansion binge, Ang shared though that SMC was not shortlisted as bidder for the acquisition of British snacks maker United Biscuits.

“I think we were not included in the shortlist,” Ang said.

United Biscuits was founded in 1948 following the merger of two Scottish family businesses, McVitie & Price and MacFarlane Lang.

United Biscuits is the leader or leading or strong No. 2 in its core markets of the United Kingdom, the Netherlands, France, Belgium, and Ireland. It also has a rapidly growing international business unit serving consumers from North America to the Middle East, Africa, and Australia.

The private equity owners of United Biscuits, Blackstone Group, and PAI Partners, have been working on plans for a sale or a public share listing by end-2014. The auction for United Biscuits is reported to be worth £2 billion ($3.2 billion**).

SMC was previously reported to be competing with other bidders like breakfast cereal maker Kellogg and Chinese private equity firm Hony Capital.

Despite being excluded from the shortlist, SMC will continue to look for investment opportunities overseas, Ang said.

“We will continue to look for more investments, whether domestic or international investments,” Ang said.

SMC controls San Miguel Purefoods Company Inc, San Miguel Brewery Inc, Ginebra San Miguel Inc, Petron Corporation, and SMC Global Power Holdings Corporation.

In September, SMC sold its 49% interest in Philippine Airlines back to the group of tycoon Lucio Tan for $1 billion. – Rappler.com

*$1 = P44.93

**£1 = $1.60

 

Oil refinery and powerplant images via Shutterstock