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NEWS UPDATES Asean Affairs        12  May 2011

San Miguel credit outlook cut

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Standard & Poor’s Rating Services (S&P) on Wednesday said it has downgraded its credit outlook for the Philippines’ biggest food and beverage maker on the back of the conglomerate’s weaker financial risk profile.

S&P revised its outlook on San Miguel Corp. (SMC) from stable to negative, affirming the “BB-” long-term foreign currency corporate credit rating, and lowering its Asean regional scale to “axBB” from “axBB+.”

The rating agency has withdrawn its ratings upon the request of SMC.

“We are revising the outlook based on our opinion that San Miguel’s already-aggressive financial risk profile will continue to deteriorate if its financial leverage does not improve over the next six to 12 months,” said Allan Redimerio, credit analyst at S&P.

“San Miguel continues to invest heavily in its diversification plans, thereby depleting its substantial cash reserves,” he said.

With the consolidation of its business interests in the un-rated leading oil refiner Petron Corp. and SMC Global Power Corp., along with increased borrowings to finance its aggressive diversification drive, S&P’s projections “point to a more leveraged San Miguel with greater operating cash flow volatility in its newer business segment.”

“The negative rating outlook reflects our opinion that San Miguel’s financial leverage position may not improve over the next six to 12 months as the company is likely to continue to invest in energy, infrastructure, and telecom assets over the next few years, which may result in further borrowing and depletion of its substantial cash reserves,” Redimerio said.

S&P said further injection of equity or securities with equity-like features into SMC’s capital structure will improve its leverage, adding that a more restrained use of its cash reserves will also support its liquidity position.

SMC recently completed a nearly $1 billion fund-raising exercise through a combination of bonds and shares. Its share from the proceeds of the offering will be used to finance its investments in its infrastructure business.

Its infrastructure projects: the Caticlan Airport, the Tarlac-Pangasinan-La Union Expressway, and the Metro Rail Transit Line 7, are in various stages of development and considered major contributors to SMC’s profitability in the future.

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