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July 24, 2007

San Miguel eyes $750mln investments
San Miguel assured investors on July 24 that food and drink would remain its core business as it seeks to invest at least $750 million in power, mining, infrastructure and property to boost growth, Reuters reported.

"Despite our ambitions, which some have criticised as 'outsized', our intent has always been to act with caution," Eduardo Cojuangco, chairman of Southeast Asia's largest food and drinks group, told the group's annual meeting in Manila.

"These new businesses that we are looking into will constitute only a fraction of our total portfolio." The Philippine group rattled investors and rating agencies in May when it said it would spin off its flagship domestic beer business and regional packaging unit in two initial public offerings and invest in capital-intensive heavy industry at home.

Since 2004, San Miguel has spent over US$2 billion on regional acquisitions but the deals mired the group in debt and failed to reduce its reliance on a saturated home market.

Ferdinand Constantino, San Miguel's chief financial officer, said the group could spend around 35 billion pesos (US$780 million) or 10% of its assets, on investments in new sectors, starting with power.

"We will have to do it one (sector) at a time. We do not have a clear timetable," Constantino told reporters. "Investors are still suspending judgement on their potential expansion," said Paul Joseph Garcia, chief investment officer at ING Bank in Manila.

"(But) That's a good start, 10% (of total assets) into non-core businesses that we think hold a lot of potential is prudent."

Cojuangco, an ally of President Gloria Macapagal Arroyo, is hoping to take advantage of government plans to sell dozens of state-run power plants and a licence to run the national grid.

On Monday, the company confirmed a Reuters story that it would bid for a 600-megawatt power plant set to be auctioned in October. The Calaca plant, in Batangas south of the Manila, had a floor price of US$288 million at a failed auction last year.

Ang said San Miguel was also interested in bidding for a 25-year licence to run the national grid (Transco), which will be auctioned in late 2007 and has been valued at 138 billion pesos.

But under privatisation rules San Miguel would be prevented from bidding for the national grid licence if it already owns a plant.

Ang, who tried to bid for the Transco licence earlier this year in a personal capacity, said San Miguel's partner in any bid would be Malaysian power firm Tenaga Nasional Bhd.

San Miguel is also in preliminary talks with longtime partner Kirin about selling the Japanese brewer a stake in its Australian businesses and Constantino said he hoped a deal would be sealed within the year.

Constantino said Kirin, which is seeking to diversify away from its home market and owns 20 percent of San Miguel, was also interested in investing in San Miguel's domestic beer business, which contributes about 40% of group operating profit.

San Miguel got formal approval on July 24 from shareholders for the diversification and plans to sell 1.5 billion preferred shares to to help fund it and pay down debt estimated by analysts at around 118 billion pesos as of May.

But retail investors and some local fund managers have steered clear of the stock, saying they are concerned about a move into businesses in which the company has no experience.

"They want to reflect dynamism in new deals. But this is not what the brand needs to be strong." said one shareholder, who declined to be named.

San Miguel's A shares, which are restricted to local players, are up about 10% this year while its B shares, open to all, are 5 percent stronger compared to a 24 percent gain in the main index. Reuters

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