Stock Commentary

Quick Takes: Updates on Eagle Cement, San Miguel and Metrobank

Merkado Barkada
Quick Takes: Updates on Eagle Cement, San Miguel and Metrobank

Eagle Cement [EAGLE 19.30 3.99%] [link] disclosed that it was informed by its own majority shareholders that they had signed a share purchase agreement with San Miguel Equity Investments, a subsidiary of San Miguel [SMC 101.00 2.02%], for the purpose of transferring 88.5% of EAGLE’s outstanding shares to SMC.

MB Quick Take: It’s basically Ramon Ang telling Ramon Ang that he’s selling his shares to Ramon Ang. That he’d be able to come to an agreement with himself was never going to be an issue. What could still be an issue, though, is the Philippine Competition Commission’s (PCC) review of the potential merger. Once the PCC is notified, there’s an initial review of the application that takes about 2 weeks, then if everything is in order, the PCC will conduct a 30-day Phase 1 review. If the merger poses no material harm to competition, then the PCC will approve, otherwise, if further investigation is required, the PCC will conduct a 60-day Phase 2 review to take a closer look at any issues raised in its “Statement of Concerns”. Basically, we need to wait until mid-November to hear the first bit of real news from the PCC.

San Miguel [SMC 101.00 2.02%] [link] said that it will continue to supply power to Meralco [MER 290.20 2.75%] under its power supply agreements, but only for the duration of the 60--day period that is required following the ERC’s rejection of the joint request by SMC and MER for a temporary power rate increase. SMC has said that it will break the agreements with MER and sell the power at spot prices, and “explore other legal remedies” that will allow it to reduce its losses while satisfying its “obligations to stakeholders.”

MB Quick Take: This issue comes down to fixed-rate power supply agreements that SMC and MER signed back in 2019, in The Before Times. The fixed-rates in the agreement somehow didn’t include any mechanisms for adjusting to massive changes in the price of electricity, or the commodities used to create it, and because of that, SMC has been eating large opportunity-cost losses. SMC’s threat to unilaterally break the supply agreements would have caused MER to acquire the lost supply at spot rates, which probably would have been at a higher cost for consumers. Now that the ERC has rejected that application, SMC is just waiting the required cool-down time before it can terminate the agreements and sell into the spot market. Maybe I’m off on this, but it feels like SMC was just hoping to keep its wildly defective supply contracts in-place through a negotiated (and predictable) garnishment of consumers through MER’s billing, instead of a variable/market rate that it would make selling into the spot market. Either way, rates for that power (in particular) probably need to go up. Granted, I know nothing about the specifics of the contract or the framework that created the contract between SMC and MER, but it seems cleaner to put the ball in SMC’s court, who took the price risk in the contract, on whether it would like to continue selling cheap power to MER or cancel the agreement. That’s what the ERC did. I can’t see how charging a “temporary” increased rate through MER would cure the disastrous drafting of the original contract; wouldn’t we all (consumers, ERC, SMC, MER) be back in the same situation next year when such a temporary rate increase inevitably expires into the same background conditions that caused it to be created in the first place?

Metrobank [MBT 51.00 0.10%] [link] now selling at least P10 billion in 5% fixed-rate bonds. The minimum investment amount is P500,000. The offer will run from now until October 19, with listing on the Philippine Dealing Exchange on October 28. The issuance is part of an existing P200 billion bond and commercial paper program approved by the board in December 2021. Proceeds will be used for working capital.

MB Quick Take: Nothing about the OPEC news, or our own inflation news, says that rates will be cooling down soon. Why not sell some bonds now, knowing that rates will probably go up for some time yet? At the very least, the OPEC thing will probably make it difficult to lower rates any time soon.



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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.






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