San Miguel Corp. (SMC), the Philippines’s biggest company by revenue, is ready to take advantage of falling valuations for energy assets as oil prices slump to a five-year low, President Ramon S. Ang said in an interview.
Any acquisition would be in addition to the company’s P360-billion ($8-billion) investment program planned across all its units through 2017, Ang, 60, said in his office in Mandaluyong City on Tuesday. That figure includes $2 billion to be spent on its existing oil business in Malaysia, as the company accelerates its expansion into energy.
SMC has been chasing energy-producing assets since at least 2012, when Ang said the company was considering a $5-billion purchase in the gas industry. In July last year, he said, the company had $10 billion to spend on Southeast Asian assets, including an energy target that would boost its sales by more than 50 percent; while in September 2014 Ang said SMC had $4 billion ready to fund an oil and gas acquisition.
The plunge in oil may mean SMC is ready to pull the trigger on its move into the upstream energy business sometime this year.
“An oil and gas field is the biggest investment we’re preparing for,” he said. “We can acquire something now at a more realistic valuation.”
Ang said the valuation of the overseas energy target may have dropped by half from about $20 billion, putting the investment within reach for the company.
Revenue boost
The company that started as a brewer more than 100 years ago has more than $4 billion it can readily deploy to fund acquisitions outside its legacy food and drinks businesses. SMC has boosted revenue fivefold to $20 billion, after investing in heavy industries such as oil, power and infrastructure, Ang said.
SMC’s oil business under unit Petron Corp. will provide stable margins as long as prices aren’t volatile, Ang said. Petron will invest $1.5 billion to upgrade its 88,000-barrel-a-day refinery in Malaysia and $500 million more to increase its gasoline stations by at least 100 from 560 now, he said.
The company completed a $2-billion upgrade of its 180,000-barrel-a-day refinery in the Philippines in November last year.
Benchmark US oil dropped below $50 a barrel for the first time since April 2009, amid speculation rising global output will exacerbate a supply glut that’s driven prices into a bear market.
‘Right direction’
Prices slumped almost 50 percent in 2014, the most since the 2008 financial crisis, as the Organization of the Petroleum Exporting Countries resisted calls to cut output amid a battle with US producers for market share.
“San Miguel is likely to make money out of volume, as more people get to travel more with cheaper oil,” Harry Liu, president of Summit Securities Inc. in Manila, said in a phone interview. “Oil will remain a big part of people’s energy requirements, as population growth and infrastructure expansion continue. Expanding its oil business could be a step in the right direction.”
Petron hedges about a fourth of its fuel requirements, SMC CFO Ferdinand Constantino said on Tuesday. To manage costs, SMC plans to cut dollar-denominated debt amid prospects for a stronger US currency, while refinancing expensive loans, the CFO said.
“There would be refinancing in food, power and oil businesses,” Ang said.
SMC shares fell 0.1 percent at the noon trading break in Manila on Wednesday, after rising 18 percent last year. Petron fell 0.3 percent after a 24-percent drop in 2014.
Making deals
The most acquisitive company in the Philippines since at least 2008, SMC has successfully bought and sold assets for profit. In 2007 SMC sold Australia’s National Foods Ltd. to Japanese brewer Kirin Holdings Co. for about $2.6 billion, after acquiring the food company for $1.5 billion in 2005.
In 2013 the company sold a 27-percent stake in Manila Electric Co. for P72 billion ($1.6 billion). It had bought the shares in the power company from Government Service Insurance System in 2008 for P27 billion.
As a result of acquisitions, debts have piled up. SMC has the equivalent of about $12.2 billion of debt and interest obligations, about $9.4 billion of which is in dollars, according to data compiled by Bloomberg. Cash and equivalents rose 33 percent to P237.7 billion at the end of the third quarter.
Oil accounted for 60 percent of sales in the July-to-September period; food and drinks made up a fourth; and power generation contributed 10 percent, according to data compiled by Bloomberg. In 2008 food and drinks were 90 percent of sales. SMC is in talks with several groups interested in its unit Bank of Commerce, Ang said. The company hired Citigroup Inc. last year to help sell its stake in the lender that Ang said is valued at $500 million.
Bloomberg News