SMC holding company raises P1B by SMC shares

San Miguel Corp.

MANILA, Philippines – Top Frontier Investment Holdings Inc., the controlling shareholder of San Miguel Corp., has raised P1.07 billion by selling a portion of its stake in the food and power 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 largest 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 undertake solicitation of 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 the current ratio from 2.3x at end-2010 to 1.1x as of end-September which means that the company is closing to breaching the convenant, 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 on Friday, SMC said Top Frontier had unloaded nine million common shares of SMC. Based on separate data from the PSE, the shares were crossed at P119.12 each on Thursday.

Top Frontier is 49-percent owned by SMC itself as represented by the company’s president Ramon Ang while 51 percent is controlled by an investor group that includes former Trade Minister Roberto V. Ongpin, Eric Recto (who is also president of Petron Corp.) as well as businessmen Iñigo Zobel and Joselito Campos.

The transaction, which analysts said may be for cash management, involved a small portion of Top Frontier’s stake in SMC.

As of end-September, Top Frontier held 1.22 billion common shares of SMC equivalent to a 36.67 percent interest.

Top Frontier likewise holds the option to buy an additional 493.37 million shares in SMC from tycoon Eduardo “Danding” Cojuangco Jr. for P37 billion. It was earlier reported that Cojuangco had made plans to unload his entire 15-percent equity interest in SMC until Nov. 19, 2012.

Top Frontier held as much as 47.5 percent of SMC at one point but placed out a portion of its shares at P110 per share during a follow-on offering earlier this year, which allowed the company to comply with the 10 percent minimum public float required by the PSE.