Spinning swill

Despite the ongoing demolition job against the San Miguel conglomerate, centering supposedly on its huge debts, the financial markets seemed to be oblivious to all the badmouthing.

The stock market still counted the conglomerate as one of the blue chips – with its P1.1 trillion in combined assets valued at “cost,” with total net worth of P366 billion, and net profits of P38 billion last year – despite some foreign exchange paper losses and all.

Not only that, according to our contacts in banking, huge multinational financial institutions even lined up to get a chance to take part in the next San Miguel deal, apparently liking its prospects in the next three to four years.

Well, the financial statements of San Miguel could speak for themselves, showing debt-to-equity ratio of 2.2 times and current ratio of 1.46 times, not to mention Ebitda (earnings before interest, taxes, depreciation and amortization) of P77 billion.

It thus seemed that the demolition job took its inspiration from the witch-hunting expedition launched by the Bangko Sentral against San Miguel way back in 2011, subjecting the conglomerate into what the Monetary Board called “stress test.”

At that time, word went around that Finance Secretary Cesar Purisima actually instigated the move on San Miguel, selling the notion to the Aquino (Part II) administration that former President Gloria Arroyo actually owned San Miguel.

Okay, the family of Gloriaetta was said to have some 10,000 or so shares in San Miguel, which the former president probably just inherited from her father, the late former President Diosdado Macapagal.

Anyway, although the BSP even tried to disguise loosely the witch-hunt as a “stress test” on the banking system — while targeting only San Miguel — the BSP eventually did not find anything wrong in the financial standings of the conglomerate.

But still some spin doctors and their spinning wheels in media recently adopted the line, just in time with the protest aired by San Miguel over the controversial bidding for the Calax (Cavite-Laguna Expressway) project.

In other words, by having a hand in the demolition job, the competitors of San Miguel were telling us that they simply could not beat the conglomerate in the business field fair and square.

And this San Miguel was the very same conglomerate that refused, unequivocally, to go into business lines like the speculative and thus highly inflationary real estate business, despite the long-running boom, or perhaps the faddish casino business.

Like it or not, anyway, when in 2008 San Miguel decided to diversify, it went into businesses that were critical to the country’s economic development, such as infrastructure investments in toll roads, power and energy, fuel retail and oil refining, and even international commercial airlines.

Its beverage business – i.e. mainly beer and gin making – last year only accounted for roughly 12 percent of its combined revenues, from almost 43 percent when it started the full diversification in 2008.

According to the ongoing spin against the group, its short-term debts supposedly went up too fast and too much, which its official financial statements showed to have amounted to P150 billion as of the end of the first quarter this year.

The real score was that the conglomerate recorded in its “combined” short term debts even those of its subsidiary Petron, which by the nature of its business line, needed a mountain of working capital just to maintain three-month oil inventory, which – as rule of thumb in the oil refining business – would also be easily converted into cash in a two-month cycle.

As for its long-term debts, its official financial statements also showed that San Miguel had some P314 billion of them as of the end of March 2014, because all the money that went into capital expenditures of its subsidiaries.

For instance, Petron was still in the thick of its $2-billion refinery upgrading project that would give it more than 90 percent conversion of crude oil into the so-called white fuel, which would have much higher margin than bunker fuel.

As a matter of fact, San Miguel viewed the Petron plant upgrade as the solution of the unabated smuggling of fuel, supposedly accounting for 30 percent of total consumption in the country, because Petron could offer much more competitive prices than imported fuel.

In power generation, as its answer to the power shortage in the land of promise called Mindanao, San Miguel invested $1.2 billion in the 600-megawatt Limay and Davao coal power plants, excluding the P15-billion power support structures in the same projects.

The truth was, just like all the businesses in this country, including the business rivals of San Miguel, the conglomerate has always applied the wise rule that “debt would be cheaper than equity any time.”

And so, ladies and gentlemen, if you will, that was all there was to the spin thrown at the conglomerate for its having to borrow money to finance its projects that we actually needed several decades ago.

Well, the spin seemed to be the stuff in the pigsty, some swill on the ground, which others might prefer to call hogwash.