San Miguel Corp promotes its famous beer as the drink of choice when best buddies get together. Tight friendship also marks the ownership structure of the 120-year old Philippine brewer. Almost 90 per cent of its common shares are held by just three close and interconnected shareholder groups after a big block held by the government was converted into non-voting preferred shares.
But that is about to change. San Miguel plans to sell one billion common shares in the next two or three months to raise 200-250bn pesos ($4.6-5.6bn) in fresh capital.
The extra cash could come in handy as the food and drinks giant diversifies into power, energy, mining and infrastructures.
The planned share sale could also be the Philippines biggest ever, dwarfing retailing and property group SM Investment Corp’s 28.8bn peso initial public offering in 2005 and Cebu Air’s 23.3bn peso IPO last year.
Depending on the final mix between new and existing shares, the follow-on offering could increase public ownership of the company to between a third and a half of the outstanding stock after the capital-raising move. At present, San Miguel’s public float stands at just 8.1 per cent of its 2.3bn common shares, according to the Philippine Stock Exchange.
A higher public float could mean San Miguel’s inclusion once more among the 30 firms that make up the Philippine Stock Exchange composite index. It was removed last year when its public float fell below 10 per cent, a big blow to the reputation of the company that claims to be south-east Asia’s biggest publicly listed food, beverage and packaging firm. San Miguel has been a mainstay of the Manila benchmark index since it was listed in 1948.
Wider ownership base could also help improve corporate governance at the company. Last year, San Miguel and another big listed company were criticised in a report by CLSA and the Asian Corporate Governance Association, a lobby group for institutional investors, as having “recently disenfranchised minority shareholders of their rights of pre-emption by changing their by-laws”.
San Miguel protested the report’s findings, pointing out that the change in by-laws were unanimously approved by shareholders and directors, and allowed to go through by government regulators. No doubt, San Miguel’s actions complied with local regulations but proposals to diminish shareholder rights would have been subjected to greater scrutiny and debate if the company had a wider public ownership that included institutional investors.
If there was disquiet over the loss of their right to buy new shares to avoid dilution of their fractional ownership, shareholders did not show it. Perhaps it helped that San Miguel’s share price rose more than 120 per cent since October on expectations its diversification strategy is creating early gains.
Now that San Miguel has dropped over 14 per cent from its recent highs, investors may turn more sanguine and demanding. Local share prices are down by a tenth since the start of the year, making Manila the worst performing market in south-east Asia, as investors shift funds back to developed markets amid fears of inflation and turmoil in emerging markets.
Amid such bearish conditions, San Miguel is preparing to sell a billion shares for as much as 200-250 pesos apiece, representing a hefty premium of 16-45 per cent over its latest close of 172.50 pesos. To succeed, it’s not enough to tout the company’s bright prospects. The company also needs to assure new shareholders they will enjoy the same rights as the close buddies who exercise ownership control at the top.
San Miguel reaps rewards of diversification, FT
Philippines investment sector freed of shackles, FT
Fund file: Philippines prepares for the big game-changer, beyondbrics