Top Frontier raises P1B from sale of San Miguel shares

Top Frontier Investment Holdings Inc., the controlling shareholder of diversifying San Miguel Corp., has raised P1.07 billion by selling a portion of its stake in the food- and power-based conglomerate.

In a related development, SMC’s beer unit San Miguel Brewery Inc. is asking creditors to amend the covenant governing its P38.8-billion bond issue in 2009—which made history at that time for being the single-biggest domestic peso-denominated bond float by a corporation.

Instead of a minimum current ratio of 1 (one peso of current asset to match every peso of current liability), SMB is proposing a minimum interest coverage ratio (consolidated earnings before interest, taxes, depreciation and amortization divided by gross interest expense) of 4.75.

“The minimum interest coverage ratio is a more appropriate measure in monitoring the financial health of the company as it gives an indication of whether SMB has sufficient margin in operating profit to cover increases in the cost of debt. It is believed to be a stronger measure of protecting the interest of lenders as it provides an early sign of the company’s ability to manage liabilities,” SMB said in a press statement.

SMB will solicit the consent of the majority of its bondholders for the replacement of the current ratio as a benchmark.

Current ratio refers to the ability of a company to service short-term obligations. It is the ratio of current assets to current liabilities.

“The shift to interest coverage ratio is actually something that is more conservative and in line with most global bond covenants. So it’s not an easier ratio per se relative to the current ratio,” one stock analyst said.

The analyst said SMB’s business was doing well but the inclusion of the three-year portion of the 2009 bonds that will mature next year as part of current liabilities has strained SMB’s current ratio, which the company is now trying to address by renegotiating the bond covenant.

Since P13 billion of the 2009 bonds became current liabilities, this led to a fall in SMB’s current ratio from 2.3x in end-2010 to 1.1x as of end-September, which means the company was close to breaching the covenant, the analyst noted.

“Most likely SMB will refinance the P13 billion before it matures. They have enough cash to pay the current portion of the bond,” the analyst said.

In a separate disclosure to the Philippine Stock Exchange yesterday, SMC said Top Frontier unloaded nine million common shares of SMC. Based on separate data from the PSE, the shares were crossed at P119.12 each on Thursday. Doris C. Dumlao