Accessing the local currency capital markets for funding

I surround myself with very competent people and get out of their way in order for them to do what they should do

Given its huge funding requirements in line with its expansion plans, San Miguel Corporation prefers to access the local currency capital markets to raise money for capital expenditures and acquisition financing

Date

26 Jun 2019

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CFO OF THE YEAR, PHILIPPINES – FERDINAND CONSTANTINO

Ferdinand Constantino wears many different hats at San Miguel Corporation (SMC), having worked at the highly-diversified Philippine conglomerate for 45 years now. While first and foremost he is group chief finance officer and treasurer for SMC since 2001, he is also director and treasurer at San Miguel Food and Beverage (SMFB) and San Miguel Equity Investments. He is also president of both the group’s insurance brokerage and logistics services businesses, vice-chairman of the power subsidiary company, plus a lot more.

So how is he able to manage all these different and demanding roles? “I surround myself with very competent people and get out of their way in order for them to do what they should do,” he tells The Asset.

With SMC in expansion mode, including in the infrastructure sector, Constantino says one of his main tasks is to ensure that there is enough funding for all of the group’s projects and acquisitions.

“Actually, my job is not only to look for money, but to make sure that the money is properly utilized for capital expenditures and to finance acquisitions,” he explains.

“In addition, I have to make sure that the businesses are properly governed. Corporate governance is very important in the way we run our businesses and we want to make sure that everybody is doing their part in terms of pursuing this strategy,” he says.

Constantino reckons that SMC has raised the equivalent of about US$3 billion during the past two years to finance all its projects and fund acquisitions – mostly in local currency. “As much as possible, we want to access the domestic capital markets for funding in order to minimize our foreign exchange risks,” he says. “There are instances, though, that we have to tap the offshore capital markets, mostly through bond offering. We usually hedge up to 50% of our foreign currency obligations.”

For instance, in April this year, SMC subsidiary SMC Global Power Holdings Corporation tapped the US dollar bond market to raise US$500 million through the issuance of senior perpetual capital securities. The Reg S unrated deal was priced at par with a similar coupon and re-offer yield of 6.50%.

The proceeds from this perpetual non-call five transaction will be used to refinance the existing perpetuals and fund investments in power-related assets, including greenfield power projects, and for general corporate purposes. The issuance attracted total demand in excess of US$1.6 billion from 129 accounts driven by asset and fund managers.

The group also raised funds from the equity market last year after selling shares to the public in order to meet the free float requirement of the Philippine Stock Exchange (PSE). This came following the reorganization of its food and beverage business to create SMFB, which saw the public float fall from 15% to about 4%.

“Under the new consolidated company, we have to offer shares again to the public in order to achieve a minimum free float of at least 10% as directed by the PSE,” Constantino explains.

The transformational deal – described as the largest completed M&A transaction in the Philippines to date – was completed in June 2018 which meant that SMFB was facing a tight time frame to conclude the share sale by December. It was very challenging for the company in the wake of market uncertainty, which eventually saw SMFB slash its offering to raise 34 billion pesos (US$650 million) after selling 400.94 million shares at 85 pesos per share.

This represented less than half of the maximum offering of 1.02 billion common shares, including an over-allotment option of 133.05 million shares, that SMFB was authorized to sell to the public. 

Date

26 Jun 2019

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