Gov’t eyes to privatize contested shares in San Miguel
The contested shares in San Miguel Corp. may eventually be out of government's control when the country's biggest conglomerate execute its latest capital raising plan

MANILA, Philippines – A block of contested shares in San Miguel Corp. may eventually be out of government’s control when the country’s biggest conglomerate execute its latest capital raising strategy.

San Miguel eyes to raise up to P80 billion–the biggest in Philippine corporate history–through a share sale plan where part of the proceeds will be used to redeem the government-held shares.

In a media interview, Finance Undersecretary John Sevilla said the government, which is the trustee of the shares that coconut farmer groups are contesting, has “no choice” but to agree to let go of the shares when San Miguel’s sale plan pushes through within the year.

“If they redeem it, we have no choice…But eventually we will sell it because government should be getting out of business,” Sevilla said.

The government holds 753.8 million preferred shares in San Miguel, which was equivalent to a 23% voting block before they were converted into a non-voting interest in 2009. San Miguel can exercise its right to buy them back this year.

Sevilla said that, while the Presidential Commission on Good Government (PCGG) is contesting the share’s ownership issue, the finance department would rather include these assets among those lined up for privatization.

“It’s in the hands of the PCGG, but eventually thats what we want to do,” Sevilla said.

Fund raising

During June 14 annual meeting of San Miguel stockholders, the board decision to increase authorized capital stock was approved. This move is a requirement before San Miguel could offer hybrid shares–perpetual preferred shares–in August or September, as well as exercise the conglomerate’s right to redeem the government-held shares.

San Miguel president and chief operating officer Ramon Ang told reporters that the conglomerate had “many options” on how to use the proceeds from the issuance of preferred shares. When asked if these options include redeeming the government’s preferred shares in the company, Ang replied, “Yes.”

Ang also said they will still decide if the P80-billion preferred shares offering would be completed in a single tranche. The government-held shares are among the 970.506 million first-series preferred shares with a total market capitalization of over P72 billion.

The planned second-series preferred shares would have a par value of P5 per share. This is lower than the P75 price per preferred share the government’s common shares were converted at in 2009.

San Miguel plans to target small investors to sell these hybrid shares to. 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.

Coco levy

The preferred shares involved debuted 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.

The government is the 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.

In 2004, the Sandiganbayan said the previously 23% contested stake belonged to the government, giving the latter the right to elect nominees to the San Miguel board and participate in voting.

The PCGG is still contesting the ownership of the shares.

The government-held shares is the last of the contested block of shares in San Miguel. Previously, the coconut farmer groups also contested the ownership and voting rights on shares that represented a 17% stake, which Cojuangco also claimed.

In April 2011, the Supreme Court ruled that Cojuangco owns these shares. –