SMC power unit to issue $300M in offshore bonds

THE POWER-generation unit of San Miguel Corp. is planning to return to the offshore bond market and raise $300 million from a fresh offering of perpetual securities.

SMC Global Power has mandated a group of international banks to set up a roadshow in Singapore and Hong Kong alongside investor calls in Europe starting last Friday.

In a disclosure to the Philippine Stock Exchange (PSE) on Friday, SMC said its power unit had tapped ANZ, Bank of America Merrill Lynch, DBS Bank Ltd., Deutsche Bank, HSBC, ING, Mizuho Securities and UBS for the prospective transaction.

The disclosure added that a “Regulation S (Reg S)” US benchmark undated subordinated capital securities offering might follow “subject to market conditions.” The “Reg S” format means the securities will be sold to global investors outside the United States.

The disclosure did not provide additional details but people familiar with the transaction said SMC Global Power was planning to raise $300 million from the sale of perpetual securities, which could not be redeemed—based on a “noncall” feature—until the fifth year. The securities are thus expected to be priced based on a five-year benchmark.

The offering will be on a stand-alone basis, which means it will not be guaranteed by parent SMC. The proceeds would be used by SMC Global Power for “general funding purposes,” one source said.

For investors, perpetual securities function like dividend-paying stocks or preferred shares as interest is paid for as long as these are held by investors. They offer a predictable source of income for the holder.

The date at which the issuer is allowed to redeem or call—in this case on the fifth year—thus becomes the maturity and pricing will be based on such tenor.

This is not the first time that SMC Global Power will tap the offshore bond market. It debuted overseas in 2011 by selling $300 million worth of bonds due on January 2016 with a coupon rate of 7 percent a year. Last year, it likewise raised $300 million from an issuance of perpetual bonds which were priced to yield 7.5 percent a year based on a 5.5-year tenor.

The San Miguel group has also been planning a stock offering debut for SMC Global Power, the country’s largest independent power company by installed capacity, supplying 22 percent of the Luzon grid and 17 percent of the national grid. This power generation holding firm administers three power plants located in Sual (coal), Ilijan (natural gas) and San Roque (hydroelectric), with a combined capacity of 2,545 megawatts, pursuant to the independent power producer administration agreements with Power Sector Assets and Liabilities Management Corp. and National Power Corp.

In September 2013, SMC Global Power’s subsidiary SMC Powergen Inc. acquired the 2×35-MW co-generation solid fuel fired plant of Petron Corp. (Petron) in Limay, Bataan. The plant added 140 MW to the total capacity of SMC Global Power, which brought its total capacity to 2,685 MW by end-September 2014.

Meanwhile, San Miguel Consolidated Power Corp. broke ground in 2013 for the new 300-MW coal-fired power plant in Malita, Davao, and for another 300-MW coal-fired power plant in Limay, Bataan. These power plants are expected to be commercially available by 2016.

SMC Global Power also bagged in 2013 the concession to rehabilitate, operate and maintain the facilities of Albay Electric Cooperative in Bicol.

In 2014, PowerOne Ventures Energy Inc. (PVEI), a subsidiary of SMC Global, and Korea Water Resources Corp. (K-Water) entered into a joint venture partnership to acquire, rehabilitate, operate and maintain the 218-MW Angat hydroelectric power plant, awarded by PSALM to K-Water.