SMC to redeem P6.8B in preferred shares

Conglomerate San Miguel Corp. (SMC) is set to redeem P6.78 billion worth of preferred shares issued seven years ago as part of a landmark capital market deal. The move will pare down a costly component of its capital base.

This is part of the P80 billion worth of perpetual preferred shares issued in 2012, the largest capital market foray in the Philippine Stock Exchange (PSE) to date.

SMC’s board approved the redemption of 90.428 million series 2 preferred shares at P75 per share plus any unpaid dividend.

“The SMC2B preferred shares, upon redemption, are not considered retired and may be reissued by the corporation,” SMC said in a disclosure.

The PSE approved SMC’s request for the voluntary trading suspension of SMC2B preferred shares starting Sept. 13.

The trading of the SMC2B preferred shares will be suspended upon redemption and may only resume upon the approval of SMC’s application for the lifting of the suspension in the event it decides to reissue the preferred shares in the future.

“I think they are just taking out some expensive capital,” said Jose Mari Lacson, ATR Asset Management head of research, noting that SMC was paying an annual dividend rate of over 7 percent for this.

The SMC2B series carries an annual dividend rate of 7.625 percent and a step-up provision on the seventh year. By redeeming the preferred shares before the seventh anniversary of issuance, SMC will avoid paying a higher dividend rate.

In 2012, SMC listed 1.067 billion series 2 preferred shares that were sold to retail and institutional investors at P75 each. Some 67.6 percent of the investment went to the subseries 2A with an annual dividend rate of 7.5 percent that carried a step-up rate in five years. Listed under the ticker “SMC2A,” it was redeemed by the company before the fifth anniversary.

About 23.9 percent of the 2012 preferred shares issuance consisted of subseries 2C—listed under ticker “SMC2C”—that carries an annual dividend rate of 8 percent with step-up provision in 10 years. Some 255.55 million of these preferred shares valued at P20.2 billion are currently listed on the stock market.