SMC shares slump 28% as trading resumes

Manila, Philippines - Stocks of San Miguel Corp. (SMC) fell 28 percent upon resumption of trading yesterday following a three-week halt that was precipitated by the conglomerate’s $900-million share and bond sale, the largest equity deal in the country and the biggest concurrent offering in Southeast Asia in more than a decade.

San Miguel dropped to as much as P105.70 prior to closing at P109.50 yesterday, below its secondary offer price of P110 each share and well below its closing price P153 on April 12, the last day it traded before the voluntary suspension was effected. A total of 34.08 million shares valued at P3.69 billion changed hands.

San Miguel, with a market capitalization of P362.22 billion, sold $300 million worth of common shares and around $600 million worth of exchangeable bonds with a coupon of two percent and conversion premium of 25 percent to the offer price.

The diversifying conglomerate voluntarily sought trading suspension to avoid further price speculation and allow the public the opportunity to carefully analyze and consider investing in the offer shares.

The transaction has raised San Miguel’s public float to almost 15 percent and could mark the stock heavyweight’s re-entry into the Philippine Stock Exchange index or PSEi.

Analysts, however, are still confident that this was just a knee-jerk reaction and that the share price would realize its true growth potential. “Given the large increase in free float and resumption of trading after three weeks halt, the first few days of trading are unlikely to be indicative of the true fair value of the company. It is encouraging that there was almost $90 million of trading volume on the stock today vis-a-vis the Philippines market average daily volume of around $120 million a day. There is also reason to believe that a reasonable amount of weaker shareholders may have sold today and the stock is now in stronger hands,” an analyst said.

Analysts still believe in the fundamentals of San Miguel, especially after it successfully increased its free float by 50 percent. “As a top 10 company by market cap and a more liquid stock, we expect that there will be renewed investor interest in San Miguel. We remain optimistic on the outlook for San Miguel as they execute on their business strategy and look forward to first quarter results release next week,” the same analyst said.

Goldman Sachs, joint bookrunner for the offer, said the issuance of San Miguel’s exchangeable bonds, which generated over $2.8 billion in demand from over 150 investors, were almost five times oversubscribed.

Co-bookrunner UBS Investment Bank said the deal, the largest concurrent equity financing undertaken for a Philippine company, “is a major achievement for San Miguel considering the volatile markets which prevailed throughout the marketing period. All these reinforced San Miguel’s reputation as the Philippines’ best managed and most entrepreneurial group.”

“The positive response to this landmark deal is proof of the investing public’s confidence in San Miguel’s diversification strategy, the strength of its key businesses and a recognition of management team’s excellent execution track record. This is an important milestone in our long history and will allow us to build on the solid platform for growth that we have already established,” said Ramon S. Ang, president and chief operating officer of San Miguel.

Ang said with the offer, the investing public can now have a direct and comprehensive participation in the Philippine growth story of which San Miguel is an active partner. San Miguel will use the bulk of the proceeds to fund investments in its high-growth infrastructure business.

Proceeds from the share and bond sale will be used for San Miguel’s further investments in infrastructure projects. The company, which already dominates the Philippine food and beverage industry, has been aggressively moving into heavy industries, taking substantial stakes in toll road operations, an oil refinery, mining firms as well as power generation and distribution, to ensure a stronger platform for growth.