San Miguel gives price guidance for $850 million fundraising

San Miguel Corp, the Philippine conglomerate whose businesses range from beer and food to oil and power production, has given preliminary price guidance for its $850 million offering of new shares and exchangeable bonds to help gauge investor interest.

Yesterday, the company also chose to suspend its stock for the duration of the sale to prevent the share price from falling further during the offering and to give investors a firm benchmark against which to price the new securities. The decision to halt trading came after San Miguel’s share price tumbled 7.5% on Monday and another 4.4% on Tuesday after the company revealed its plan to split the fundraising between shares and equity-linked bonds.

In a statement to the Philippine Stock Exchange, the company said “a suspension of trading will deter any speculative transactions and allow the public the opportunity to carefully analyse and consider investing in the offer shares”.

While the Monday announcement contained few details, some investors were likely disappointed with the fundraising size. In December, the company’s vice chairman Ramon Ang said the company planned to sell 1 billion shares to increase the public float, which suggested a deal size of about $3 billion. And with the share price having risen since then, there was the potential for an even larger deal. However, instead the company has decided to significantly trim the size and as per Monday’s announcement will now only raise a portion of the targeted $850 million through the sale of new shares. Hence the positive impact on the free-float will be a lot smaller.

Even if the entire amount was to be raised through a share sale, the company would issue only about 260 million new shares, based on the price guidance communicated to investors.

While the combination deal is now being actively marketed by the banks involved, the company hasn’t yet given any indication of how the offering will be split between the equity and the EB portion. And sources say it is unlikely to do so before the final pricing. Also, it hasn’t specified how much of the equity will be open to international investors.

However, the bookrunners yesterday set a preliminary price range of Ps140 to Ps160 for the equity portion. This compares with a closing price of Ps153 on Tuesday and suggests a maximum discount of 8.5% to the market price. However, the top of the range suggests a premium of 4.6%, which seems optimistic. Indeed, sources said the final price was unlikely to be fixed above the latest market price.

The initial intention is for half the deal to be new shares and the other half to come from controlling shareholder Top Frontier, which currently owns 67.2% of the company and controls 88.4% of the votes. San Miguel also owns a 49% stake in Top Frontier and all of the latter’s directors also sit on the board of San Miguel. The final split between new and existing shares will depend on the final price and hence is unlikely to be determined until the pricing.

The institutional offering will remain open until April 19 and the final price is expected to be set the following day. The shares will remain suspended until May 5.

Meanwhile, the three-year (no put) exchangeable bond is being marketed with a coupon and yield of 2% to 2.5% and a conversion premium ranging from 20% to 25%, according to sources. As with other concurrent equity and equity-linked deals, the reference price for the EB will be the final price for equity offering.

The bonds will be issued by San Miguel and exchangeable into existing shares held by the company. They come with a full dividend adjustment and a quarterly reset.

San Miguel will use the proceeds from the sale of new shares for continued investments into its infrastructure business, for working capital and for other general corporate purposes.

Credit Suisse and Standard Chartered are joint global coordinators and joint bookrunners both for the international portion of the equity offering and for the EB. They are joined as bookrunners by Goldman Sachs and UBS. ATR-Kim Eng, BDO Capital and SB Capital are joint bookrunners for the domestic offering.