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San Miguel Corporation (SMC) Preferred Shares

Saw this in the Inquirer. It looks like a good investment compared to SDA. If I read it right... 8% p.a. yung interest tapos lower daw yung tax compared to others. Does anyone have additional information about this? Or any comments if you agree that this is a good investment?

SMC presents capital-building plan to stockholders Thursday
By: Doris C. Dumlao
Philippine Daily Inquirer

MANILA, Philippines—San Miguel Corp. will ask stockholders on Thursday to ratify a capital-building strategy that includes a plan to offer a new series of preferred shares worth as much as P80 billion by the third quarter of this year.

In a disclosure to the Philippine Stock Exchange on Wednesday, SMC confirmed plans to issue a new series of preferred shares and boost its authorized capital, thereby supporting further expansion and diversification plans.

SMC plans to raise its authorized capital to P30 billion from the current P22.5 billion through an increase in common shares by 400 million to 3.79 billion, and issuance of a 1.1-billion new series of preferred shares with a par value of P5 per share.

Industry sources said SMC was planning to offer by August as much as P80 billion worth of preferred shares to refinance the P72 billion worth of preferred shares that were issued to stockholders—including the government—and that converted their common shares to preferred stocks in 2009. If issued at the maximum offer size of P80 billion, this will be the single largest tranche of capital market activity in the country, exceeded only by the the Bureau of Treasury’s Retail Treasury bonds (RTBs).

For this landmark offering, SMC is targeting retail investors that have no other investment outlet except the Bangko Sentral ng Pilipinas’ special deposit accounts (SDAs) or government bonds. The shares will be listed on the PSE.

“The issuance of a new set or series of perpetual preferred shares would be advisable to finance the redemption of the Series 1 shares as it would enable SMC to potentially reduce cost of capital,” said Jose Mari Lacson, head of research at Campos Lanuza & Co.

“At 8 percent (per annum) cost of capital for the preferred shares is very expensive. The only concern is if SMC plans to redeem the preferred shares in whole with the issuance of new preferred shares of equal size, can the markets absorb the capital-raising exercise at a minimum of P72 billion? There’s a chance it’s simply too big and too soon after BDO’s stock rights offering. We most likely will see a Series 1 redemption of a smaller magnitude,” he said.

Tycoon Henry Sy’s Banco de Oro Unibank is likewise raising within this month $1 billion from a stock rights offering.

Sources privy to the exercise, however, said SMC would attempt to refinance the old series of preferred stocks in a single tranche. They say the timing of its offering is favorable in the third quarter given that there will be P70 billion maturing RTBs by August and September this year on top of the large pool of funds under the SDAs.

The first series of preferred stocks, which targeted shareholders that would like a fixed return instead of sharing in the risks from SMC’s diversification, were issued at P75 per share in 2009.

The conglomerate has been diversifying out of its traditional food-and-beverage businesses in the last few years. It has entered the power, oil, toll-road, mining, airport and telecommunications businesses, and, most recently, bought a substantial stake and management control of flag carrier Philippine Airlines in a $500-million buy-in deal. It sold a controlling stake in Bank of Commerce to Malaysian banking giant CIMB.
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Comments

  • KuyaDannyKuyaDanny Moderator PEx Moderator
    This is not directly comparable to SDA. SDA is a one-month investment placed with the government. These preferred shares are "forever" investments placed with a private corporation, so of course SMC has to pay more.

    That 8% is not interest, but dividends, payable only if SMC has sufficient retained earnings. From the wording of the article, 8% seems to be the dividend rate on existing (outstanding) preferred shares which will be repaid from the proceeds of the new preferred share offering. If they are selling the preferred shares in August. it seems too early to fix the dividend rate today. So the dividend rate on these new preferreds might be lower than 8%. I would keep watching in the next few weeks for more news on the dividend rate.

    The last new preferred share issue I am aware of is FGEN Series G, sold last month with a dividend rate of 7.808%. If SMC's CFO thinks his company is one of the most creditworthy in this country, why will he agree to pay more than FGEN?
  • trailblazer_boytrailblazer_boy PEx Veteran ⭐⭐
    Thanks Kuya Danny. I agree with you. I think they meant this investment is a good alternative from SDA. I bought San Miguel Purefoods Preferred Share with a dividend rate of 8% gross which for me is a good investment.

    Balitaan mo kami Kuya Danny, if you heard the final dividend rate para makabili na tayo hehe
  • sagoatgulamansagoatgulaman PEx Rookie ⭐
    Dividend rate per annum on the sub-series (2-A) that carries a step-up rate in five years is 7.5 percent and that on sub-series (2-B) with step-up rate on 7th year is 7.625 percent. The sub-series that will have a step-up rate in 10 years will be paid a dividend rate of 8 percent per annum, the SEC documents said.

    From http://business.inquirer.net/76587/smc-rolls-out-p80b-preferred-shares-offer

    Is there a minimum investment for this? Like a minimum number of shares one must buy?
  • Hi All, I asked my BDO branch, they informed me minimum investment is 500 shares or 37,500. The 2-a 5 year sub series works out to 6.75% annually net. Kuya Danny, I was told by my branch manager that rate is fixed and SMC has an option to repay on the 3rd year. Dividends will be released quarterly. The stock is also a series 2 which is cumulative, non-voting, non-participatory, non-convertible perpetual preferred shares. What are the risks if any? I have a substantial amount parked in SDAs, and am considering moving it here.
  • With BPI, minimum is 100 shares
  • KuyaDannyKuyaDanny Moderator PEx Moderator
    Jerryd wrote: »
    What are the risks if any?

    The main risk with this kind of investment is that the company cannot pay dividends unless it has retained earnings. You might conclude that SMC has a long history of profitable operations and therefore accumulates earnings at a sustainable rate. Nevertheless, keep this risk in mind.

    These shares may be listed on the PSE, in which case, please remember that the board lot for this price will be 100 shares. You are advised to invest in whole lots to make selling easier in the future.
  • trailblazer_boytrailblazer_boy PEx Veteran ⭐⭐
    Guys, just wanted to confirm kung tama yung anniversary years. So 2-A is 5 years, 2-B is 7 years and 2-C is 10 years? What happens after the anniversary years... will they automatically return your money?


    Subseries “ 2-A” : 7.5% per annum;
    Subseries “ 2-B” : 7.625% per annum;
    Subseries “ 2-C” : 8.0% per annu
  • trailblazer_boytrailblazer_boy PEx Veteran ⭐⭐
    Jerryd wrote: »
    Hi All, I asked my BDO branch, they informed me minimum investment is 500 shares or 37,500. The 2-a 5 year sub series works out to 6.75% annually net. Kuya Danny, I was told by my branch manager that rate is fixed and SMC has an option to repay on the 3rd year. Dividends will be released quarterly. The stock is also a series 2 which is cumulative, non-voting, non-participatory, non-convertible perpetual preferred shares. What are the risks if any? I have a substantial amount parked in SDAs, and am considering moving it here.

    I will check with HSBC how much yung 2-A nila para macompare ko kung alin mas mataas =)
  • Thanks Kuya Danny. Based on the literature my branch manager provided me it states that the cash dividends are cumulative. "If for any reason the Board of Directors of SMC does not declare a cash dividend on the Series 2 preferred shares for a dividend period, SMC will not pay a cash dividend on the the dividend payment due date for that dividend period. However any future dividend period on which cash dividends are declared, holders must receive the accrued and unpaid cash dividends due them on such dividend date as well as all arrears of dividends prior to such dividend date." For the 5 year subseries, SMC also has an option to redeem on the third year.
  • Guys, just wanted to confirm kung tama yung anniversary years. So 2-A is 5 years, 2-B is 7 years and 2-C is 10 years? What happens after the anniversary years... will they automatically return your money?


    Subseries “ 2-A” : 7.5% per annum;
    Subseries “ 2-B” : 7.625% per annum;
    Subseries “ 2-C” : 8.0% per annu

    from what I understand, (and please correct me if I'm wrong ) yes. if they do not redeem from the final issue date of the sub-series they will pay the PDST-F rate (for subseries 2-A ten year PDST-F rate) plus 3% per annum.
  • trailblazer_boytrailblazer_boy PEx Veteran ⭐⭐
    May holding period ba eto? For example... 1 year bago mo mabenta?
  • KuyaDannyKuyaDanny Moderator PEx Moderator
    I don't think so. If these shares ever get listed on the PSE, then they will be treated just like any new issue sold to the public. They will be sellable on the first day they are listed.
  • Hi. Kinda new on this.

    Is this a good buy for starters like me?

    Thanks.
  • I went to Chinabank yesterday and you can also reserve there. Minimum of 1,500 shares or 112,500 pesos.

    I'm fairly new to investing so di ko gaano naintindihan what the other details the bank officer told me...

    Just sharing.
  • I went to Chinabank yesterday and you can also reserve there. Minimum of 1,500 shares or 112,500 pesos.

    I'm fairly new to investing so di ko gaano naintindihan what the other details the bank officer told me...

    Just sharing.

    I did the same last Friday. I'm just validating whether its a good buy or not at 75 a share.
  • i bought 2000 shares for subseries 2c. will reinvest the cash dividends in stock mutual funds. this will finance part of my 7 year old child's college education.
  • KuyaDannyKuyaDanny Moderator PEx Moderator
    g_func2002 wrote: »
    I did the same last Friday. I'm just validating whether its a good buy or not at 75 a share.


    If you are asking if the price could exceed P75 in the future, the answer is yes, but not by much. Remember that when these shares are redeemed after x years, you will be paid P75. Who will want to pay, say P100 for shares that will be worth P75 in x years?

    You should regard these shares as if they were bonds, and assume that the dividend payments will be the primary source of any earnings you may derive.
  • KuyaDannyKuyaDanny Moderator PEx Moderator
    g_func2002's query and my reply have been moved to a more appropriate thread.
  • trailblazer_boytrailblazer_boy PEx Veteran ⭐⭐
    Jerryd wrote: »
    Hi All, I asked my BDO branch, they informed me minimum investment is 500 shares or 37,500. The 2-a 5 year sub series works out to 6.75% annually net. Kuya Danny, I was told by my branch manager that rate is fixed and SMC has an option to repay on the 3rd year. Dividends will be released quarterly. The stock is also a series 2 which is cumulative, non-voting, non-participatory, non-convertible perpetual preferred shares. What are the risks if any? I have a substantial amount parked in SDAs, and am considering moving it here.

    Hi Jerryd, which branch did you inquired? I called BDO Fairview and they said it's not available in their branch. I called BPI Fairview and it's the same thing... it's not available there.

    I called HSBC Commonwealth and it's available there... but the net is 6.5% for series A.

    Can you let me know which branch you called? Thanks.
  • KuyaDannyKuyaDanny Moderator PEx Moderator
    My BPI branch says BPI is not selling these at all.
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