San Mig Brewery seeks changes in bond terms

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San Miguel Brewery is asking holders of P38.8 billion bond to agree to a change in a measure of its financial health

MANILA, Philippines – The brewery unit of diversifying conglomerate San Miguel Corp. would be asking its bondholders for their consent to replace one of the financial terms of its debt issuance.

In a disclosure to the stock exchange on Monday, Dec. 26, 2011, San Miguel Brewery Inc. (SMB) said it would ask its investors to allow the use of a “minimum interest coverage ratio” of 4.75:1 in place of the current required “minimum current ratio” of 1:1. 

The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. On the other hand, current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. It is an indication of a company’s ability to meet short-term debt obligations.

“The minimum interest coverage ratio is a more relevant measure in monitoring the financial health of SMB, as it gives an indication of whether SMB has sufficient margin in operating profit to cover increases in the cost of debt,” the company said.

“It is believed to be a stronger measure of protecting the interest of lenders, as it limits additional debt unless DMB is able to generate enough earnings to service such debt,” it added.

SMB issued the fixed rate bonds worth P38.8 billion in 2009. 

The consent solicitation is pursuant to the trust agreement in 2009 covering outstanding 8.25% Series A bonds due 2012, 8.875% Series B bonds due 2014 and 10.5% Series C bonds due 2019.

The consent solicitation will run until January 27, 2012 with an early deadline set for January 12, 2012.

In October, the Philippine Rating Services Corp. maintained its triple-A rating for SMB bonds, which means the company’s capacity to meet its financial commitment was extremely strong.

SMB remains the leader in the Philippine beer industry, with a market share of approximately 96% in 2010. –


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