SMIC gets Triple-A rating on P15-B bond offer

MANILA, Philippines—Tycoon Henry Sy-led SM Investments has obtained a triple-A credit rating from local credit watcher Philippine Rating Services Corp. on its proposed fresh local retail bond offering worth up to P15 billion.

Obligations rated “PRS Aaa” are deemed of the highest quality with minimal credit risk. It also suggests that the borrower’s capacity to meet its financial commitment on the obligation is “extremely strong.”

In a press statement on Monday, Philratings said this assessment reflected the following factors: SMIC’s diversified portfolio, which includes core companies with strong market position, sustained earnings and recurring cash flows; its solid brand equity and experienced management team; strong liquidity; and sound capitalization.

The ratings also consider the continued positive prospects for the Philippine economy, in general and the industries where the SM Group has primary investments, in particular, Philratings said.

From the first ShoeMart store which opened in 1958, the SM group has since evolved into a group of companies with five core businesses: shopping mall development and management (SM Prime), retail (SM Department Stores, SM Supermarkets, SM Hypermarkets and SaveMore stores), financial services (BDO Unibank, Inc. and China Banking Corp.), real estate development and tourism (SM Land Inc., SM Development Corp., Costa Del Hamilo Inc. and Highlands Prime Inc.), and hotels and conventions (SM Hotels, SMX Convention Specialists, Hotel Specialists-Tagaytay, Cebu and Pico de Loro).

“Growth has been aggressive, but has also remained focus on keeping market leadership and maximizing synergies within the Group.  The SM Group continues to look for opportunities and acts accordingly when such opportunities arise.  It has consistently pursued its expansion plans through the Philippine economy’s highs and lows, successfully adopting the necessary changes to suit the demands of the times. The result has been highly positive, leading to the development of a strong franchise for the SM brand,” Philratings said.

Philratings said the SM group’s strategy of offering basic goods and services to the mass market placed SMIC in a better position to ride out economic downturns.  “The foregoing statement has been validated by the group’s performance in 1998, as well as in 2009-2011, with operating results remaining positive despite regional and global developments,” Philratings said.

The proposed bond issue is worth P10 billion with an oversubscription option of up to P5 billion. It will be SMIC’s first time to return to the local bond market since 2009.

Philratings said liquidity of the group would continue to be healthy. Reflecting the group’s expansion mode, Philratings said cash would be used primarily for investment purposes, mainly for investment properties, as well as land and development.

“While enhancing liquidity, recurring cash flows from the retail and malls businesses also support the regular upstreaming of dividends to SMIC parent (holding company).  In addition, SMIC parent receives annual management fees for management services provided to subsidiaries and affiliates,” the rating firm said.

At the same time, Philratings said debt management would continue to be sound.  Debt to capitalization ratio is seen peaking at end-2012 as SMIC incurs additional long-term debt. “Still, the increase is considered manageable for the group.  Equity growth will be supported by the continuous plowback of earnings into operations,” the rating firm said.