PHOTO: Official website of Fitch
The Fitch Group’s CreditSights maintained its strong debt rating for San Miguel Corp. (SMC) even as the consumer and infrastructure conglomerate launched a P97-billion takeover bid for Eagle Cement Corp. which is personally owned by the conglomerate’s president, Ramon Ang.
In a report, CreditSights underscored benefits for SMC’s own cement production and its ongoing infrastructure program, which includes the P740-billion Bulacan airport project.
But it also cited risks such as questions that may arise over the “large purchase premium” among related parties and the possibility the acquisition would fail to get approval from the Philippine Competition Commission (PCC), the country’s anitmonopoly watchdog.
Nevertheless, CreditSights maintained SMC’s “outperform recommendation” due to strong business prospects in 2022 relative to some of its conglomerate peers.
“Its diversified business profile has enabled its revenues/earnings to remain resilient, even amid economic downturns. Its [first half 2022] revenues and earnings surpassed pre-pandemic levels owing to a broad-based recovery in all businesses; in turn, leverage improved mildly too,” the report showed.
SMC earlier said it would acquire 88.5 percent of Eagle Cement, which CreditSights said would increase revenues by 2 percent and earnings before interest, taxes, depreciation and amortization by 4 percent.
“Besides boosting SMC’s cement production capacity, the acquisition will also create synergies with SMCʼs growing infrastructure business, where it is developing various arterial expressways across Luzon, as well as the mega New Manila International Airport,” the report showed. The deal would need to secure approval from the PCC before pushing through.
CreditsSights warned a “possible unfavorable decision by the PCC will hamper this deal.” The PCC played a central role in the 2020 collapse of SMC’s proposed takeover of Holcim Philippines Inc., a rival of Eagle Cement.
The Holcim Philippines acquisition was scuttled after the parties failed to get clearance from the PCC, which raised antitrust concerns such as a “monopoly” in Northwest Luzon and increased market power for SMC.
Meanwhile, SMC is preparing for the mandated offer to acquire the shares of Eagle Cement’s minority stockholders. It added the process, with an estimated value of P12.7 billion, would only begin after the parties secure approval from the PCC.
Eagle Cement earlier said it would delist from the exchange should the tender offer result in its public ownership level falling below 10 percent. INQ