Philippines: San Miguel's beer IPO cut to $147 million

Southeast Asian food and drinks group San Miguel Corp. priced the IPO of its flagship domestic beer unit at the bottom of the range, shrinking what had been touted as a major listing to a $147-million debut, Reuters reported April 25.

"It's a token listing for San Miguel. It's very small," said PJ Garcia, chief investment officer for ING Investment Management Philippines. "But we'll definitely be buying at these levels."

At the start of the year, San Miguel Brewery was gearing up to be the Philippines' biggest-ever IPO with maximum proceeds of $600 million plus, to overshadow conglomerate SM Investments' record $530 million offer in 2005.

But turbulent market conditions and investor complaints that the offer was too expensive forced San Miguel to twice shrink the price range from an original P9.50-P16.30 per share and halve the offer to just 5.0 percent of San Miguel Brewery's stock.

Friday's price was the bottom of an eventual P8.00-P11.00-a-share price range. The bulk of the proceeds will be used to pay off San Miguel's debts.

Sources said the overseas offer, which closed on Thursday, was around 1-½ times covered. The domestic offer, which opens on Monday, will run until May 5 and the listing will be held on May 12.

San Miguel was offering 70 percent of the listing to foreign investors and the rest to domestic buyers.

The IPO price values San Miguel Brewery, the Philippines dominant beer producer, at 13.7 times forward earnings, still at a premium to the local market, which is trading around 10 times, but broadly in line with regional peers.

Singapore's Asia Pacific Breweries is valued at 22.2 times forward earnings, Thai Beverage is valued at 13.9 times forward earnings, and Japan's Kirin is valued at 11.7 times.

San Miguel's B stock, open to all investors fell 1.1 percent on Friday and its A shares, restricted to domestic buyers, were also 1.1 percent weaker. The broader market was 1.8 percent in the red.

San Miguel's shares have lost around 35 percent since the company announced in May last year that it wanted to diversify into heavy industry in its home market amid rising input costs and sluggish growth. Investors sold the shares on uncertainty over whether San Miguel's plans would be profitable.

SELL-OFFS

The company, in which Kirin holds around 20 percent, has been selling off businesses to prepare for its shift into energy, mining and infrastructure at home.

Last year, it sold its biggest overseas unit, Australian dairy and juice manufacturer National Foods, to Kirin for $2.6 billion. A planned IPO of its regional packaging business has been shelved until next year.

San Miguel Brewery contributes around 40 percent of group operating profit and posted a 37-percent increase in net profit in the first quarter to P2.5 billion ($59.5 million) on net sales up 13 percent.

The IPO values the beer business, considered the company crown jewel, at $2.9 billion, and is the only big listing scheduled for this year.

The parent group has a market value of around $3.45 billion.

The local index has lost 23 percent so far this year, the second-worst performer in Southeast Asia after Ho Chi Minh in Vietnam.

In January, Cebu Pacific, the Philippines' top budget airline, shelved plans for a $309-million IPO.

Citigroup and ATR Kim-Eng Capital Partners are joint global coordinators in the San Miguel Brewery IPO. ATR Kim-Eng Capital and BDO Capital are joint domestic underwriters.

25 April, 2008