September 16, 2010

Pure Foods eyes US$1 billion of shares issue

Publicly-listed San Miguel Pure Foods Co. will issue up to PHP50 billion (US$1.12 billion) worth of preferred shares after failing to reach a deal for the sale of a 49% stake.

The bonds will be used to bankroll its expansion and participation in "high-yielding investments" being pursued by its parent firm, San Miguel Corporation.

In its disclosure to the Philippine Stock Exchange, Pure Foods said its board approved on September 15 the company's participation in businesses, including power generation or transmission, water and other utilities and infrastructure, which have a return on equity triple that of the conglomerate's food and beverage businesses.

In preparation for this, the company has approved the reclassification of up to 75 million common shares into non-voting, cumulative and non-participating preferred shares with other features to be determined by management.

Another fund-raising activity approved by the board was the issuance of San Miguel Mills and other subsidiaries with financial capability to issue fixed-rate long term bonds, amounting to PHP10 billion (US$225.96 million).

San Miguel, the food, drinks and packaging conglomerate, is itself planning a PHP75-billion (US$1.69 billion) share offering to fund its acquisitions as it seeks stronger avenues to accelerate growth. It has raised around US$3 billion from asset sales over the past three years.
Pure Foods' planned preferred share issuance followed failed negotiations between San Miguel and two prospective buyers-the partnership between the Campos family and tuna canner Century Pacific Group, and Universal Robina Corporation of the Gokongwei family.

San Miguel rejected their offers since they wanted to acquire 100 percent of Pure Foods. The conglomerate was only willing to divest up to a 49-percent stake in the food processing firm.

San Miguel owns 99.92 percent of Pure Foods which owns the Purefoods, Magnolia, Monterey Star, San Mig Coffee and B-Meg brands.
As of end-March this year, it had PHP121.07 billion (US$2.72 billion) in cash and near-cash assets as against PHP209.4 billion (US$4.72 billion) in the same period a year ago.

San Miguel is hard pressed to raise funds to cover the purchase of substantial stakes in several companies including power distributor Manila Electric Co., oil refiner Petron Corp., Bank of Commerce, Caticlan International Airport and Development Corp., several power plants, toll road operations and coal mines.

For Petron alone, San Miguel would need to shell out around PHP19 billion (US$428.65 million) before the year ends if it decides to exercise an option to buy the remaining stake in SEA Refinery Corp., which holds 50.1 percent of Petron.

Between 2009 and 2011, San Miguel will also have to pay PHP27 billion (US$609.13 million) to the Government Service Insurance System for the state pension fund's 27 percent stake in Meralco.

Aside from these, San Miguel is considering pursuing two major infrastructure projects-the PHP65-billion (US$1.46 billion) Laiban Dam project, in Tanay, Rizal which the company said would "alleviate the immediate need to provide an alternative water supply for Metro Manila" and the Diosdado Macapagal International Airport in Pampanga which could be worth more than PHP8 billion (US$180.48 million).