SM bonds retain top local credit rating

MANILA, Philippines—Local credit watcher Philippine Rating Services Corp. has retained its sterling credit rating on the P10 billion worth of bonds issued by Henry Sy’s SM Investments Corp.

Obligations rated triple-A or “PRS Aaa,” the highest rating assigned by Philratings, are deemed of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.

In a statement, Philratings said the rating reflected SMIC’s sound investment portfolio, consisting of core businesses with solid market position, sustained earnings and recurring cash flows; well-established brand equity, enhanced by synergies within the SM Group; strong liquidity; and sound capitalization.

The rating also considered the continued relatively positive prospects for the Philippine economy, in general, and the industries where the SM Group has primary investments, in particular.

Philratings noted that from the first ShoeMart store in 1958, the SM group has since evolved into a group of companies with five core businesses: shopping malls; retail merchandising; financial services; real estate development; and tourism, hotels and conventions.

“The underlying reason for the steady and continuous growth of the SM group, particularly in the last decade, can be attributed to the fact the group has remained focused on its competitive strengths and continues to build on these.  Also, while core businesses operate independently, synergies are explored and created to boost the various businesses’ growth potential,” the statement said.

SM Prime Holdings Inc. is the country’s leading shopping mall developer and operator.  By end-2011, SM Prime will have 47 malls (four in China and 43 in the Philippines), with an estimated combined gross floor area of 5.9 million square meters.

SM Department Store is a leading player in the local retail merchandising scene, serving millions of customers in 40 stores across the country as of end-2010.  These  stores are located in Metro Manila and key provincial cities, making it possible for the SM brand to be recognized from as far north as Baguio to as far south as Davao.

Banking unit Banco de Oro Unibank Inc. is the country’s largest bank in terms of resources, loan portfolio, deposits and assets under management. It has one of the largest distribution networks, with over 700 branch licenses and more than 1,400 ATMs nationwide.

Philratings said BDO has been able to benefit from the synergies resulting from SM’s large customer network, SM’s expertise in the retail and property markets and a strong presence in SM malls throughout the country.

It noted that residential property development arm SM Development Corp. sold the biggest number of Metro Manila residential condominium units in 2010.  Given this figure, the company was estimated to have a 24 percent market share given a total of approximately 43,000 residential condominium units sold last year.

Philratings noted that SMIC’s liquidity remained sound in 2010, with positive cash flow from operations amounting to P11.4 billion. Albeit lower from a year ago, current ratio was still very satisfactory at 1.7 times its current liabilities as of end-2010. Cash and cash equivalents provided more than ample coverage of the group’s current debt.

“Operating cash flow will continue to be positive. Cash and cash equivalents at the end of 2011 and 2012 will be used for additional investment properties, as well as for land and development,” Philratings said.