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SMC unit’s perpetual securities ‘volatile’ — CreditSights

SMC Global Power Holdings Corp.’s perpetual capital securities are volatile in the short to medium term, credit research provider CreditSights said, as it withdrew its strong debt rating for San Miguel Corp. (SMC) on rising concerns over the conglomerate’s power arm.

CreditSights said that the five outstanding perpetual capital securities of SMC Global Power have sold off in recent days, trading in the price range of $61 to $66.

“The volatility was caused by the continued pressure that SMC Global Power faced on its profits this year due to the spike in input costs, as well as media reports citing the company’s financial position,” the Fitch Group’s CreditSights said.

On Wednesday, SMC authorized its subsidiary SMC Global Power to purchase debt amounting to $400 million in a tender offer of securities listed in Singapore.

The tender offer is part of the company’s process of streamlining its existing financing mix. In SMC’s press release last week, it denied reports that the company is in a difficult financial position.

“We’re confident that we will be able to manage the company’s maturing obligations in 2023 and beyond. If necessary, there will be SMC parent support,” SMC President Ramon S. Ang earlier said.

In its report, CreditSights said that it had initiated an “underperform” recommendation on SMC Global Power’s dollar bonds in January 2022, “on the back of input cost pressures, high leverage and elevated capex (capital expenditure) plans.”

It added that the company’s financial profile “has continued to deteriorate since,” and its outstanding dollar perpetual securities’ yields “have widened significantly.”

Further, CreditSights suggested to bondholders “to not tender for securities callable in and after March 2025.“

“Nonetheless, we maintain our Sell recommendation on the credit, owing to our outlook for a continued deterioration in SMC Global Power,” the report said.

Earlier, CreditSights maintained its strong debt rating for SMC after the company acquired an 88.5% stake in Eagle Cement Corp.

“We shift our recommendation on SMC to Hold from Outperform,” CreditSights said.

“It is constructing a new mega airport near Metro Manila which will further increase its capex requirements this decade. Given the worsening financial profile of SMC Global Power, any concerns over its hypothetical default raises fears of triggering a cross-default on SMC,” the report said.

The report said, however, that SMC’s diversified profile should enable its earnings to remain resilient amid economic downturns, adding that a number of its businesses, including power, infra, and cement, require large upfront capital costs and have long gestation periods.

At the stock exchange on Thursday, shares in the company closed unchanged at P98.45 apiece. — Ashley Erika O. Jose

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