SM group eyes regional expansion

MANILA, Philippines – From a modest shoe store in Quiapo, SM, the company that the Philippines’ richest man founded in 1946, now wants to expand its footprint.  

In a media briefing on Friday, May 31, Henry Sy Sr’s son and namesake said the business group’s property and mall units will be folded into one to create not just the biggest real estate company in the Philippines but also a regional real estate powerhouse.

“We believe there is a regional clamor for the type of development (that SM offers) as there is demand for a holistic and sustainable environment consequently providing much improved lifestyle to our clients,” Henry Sy Jr., vice chair of holding firm SM Investments Corp. (SMIC) vice chairman, said.

SMIC will consolidate units SM Land, residential developer SM Development Corp. (SMDC), luxury developer Highlands Prime Inc. and mall operator SM Prime Holdings within the year. SM Prime will be the surviving entity.

“This (merger) will allow SM Prime to become a fully integrated real estate platform that may well be positioned to further accelerate the (company’s) growth,” he said.

The SM group currently operates the widest chain of malls in the Philippines and have presence in China. 

Template for growth

The SM group wants to use their existing mixed-use and integrated establishments as template for their future ventures.

“We view that there’s an increasing demand for such landmark projects that would address the needs of other sectors as we ride on the emergence of the Philippine economy,” Sy Jr. said.

He cited their fully-integrated SM Mall of Asia (MOA) project in Pasay City. The MOA complex, launched in 2007, includes a shopping mall, convention center, commercial buildings and, soon, a hotel.  

“This template of mall, hotels, commercial, residential buildings and convention centers proves our commitment to a holistic environment…. This template can be replicated in many parts of the Philippines, China and the rest of the region.”

Currently, SM group has 47 malls in the Philippines and 5 more in China.

More investors

SMIC chief finance officer Jose Sio explained that a bigger and simpler corporate structure will allow the group to tap more investors.  

“The common comments from investors when we do roadshows is that the structure of SM group is not easy to understand and digest. The consolidation aims to simplify the structure of the whole group,” Sio said.

The existing structure involves a complex web of ownership with SMIC as the parent firm and SM Development Corp. (SMDC) and SM Prime as separate subsidiaries. SM Land is not publicly listed.

“If we don’t push for the transaction, our companies will remain small and we all know, fund managers have their own internal procedures that they can only invest in companies with a certain market capitalization,” he said.

SM Prime’s projected market capitalization with the merger is around $14 billion.

Here is the summary of the SM Prime’s financial muscle before and after the merger:

CURRENT		AFTER THE MERGER
P148.1 billion	Total assets	P284.1 billion
P30.7 billion	Revenues	P57.4 billion
P20.7 billion	EBITDA	P27.5 billion
P10.9 billion	Net income	P17 billion
57.1%	Gearing (net debt/equity)	40.4%
110 hectares	Total landbank	est. 920 hectares

 

More efficient 

Scaling up will require working as “one team” and becoming more efficient and coordinated, Sy Jr. said. 

“Our mission can be efficiently supported if we work as one team. Integration of all our property businesses will beef up the scale of the company.”

According to SM Prime chief finance officer (CFO) Jeffrey Lim, the consolidation will go through these phases:

• SM Land will conduct a tender offer to acquire up to 100% of SMDC and Highlands Prime in exchange of SM Prime shares
• SM Land and all of its assets will be combined with SM Prime through the merger with SM Prime as the surviving entity
• SMIC will transfer several unlisted assets and companies to SM Prime in exchange of the new SM Prime shares

The transaction will boost SM Prime’s total outstanding shares to 28.4 billion from 17.1 billion

“The transaction will simplify the group’s corporate structure, increase organizational efficiency and increase coordination across the (different SM) units,” Lim said. – Rappler.com