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January 30, 2009

Philippines: San Miguel to raise $847m through domestic debt issue

San Miguel Brewery (SMB.PS), the Philippine flagship of the San Miguel group, plans to raise as much as 40 billion pesos ($847 million) in a domestic bond issue to fund its purchase of the group's local beer brands and related assets.

"We will borrow to pay," Reuters quoted San Miguel Brewery President Ramon Ang, who is also president of the San Miguel group, as saying in a text message to reporters late on Thursday. "SMB is debt free."

Ang said the brewery arm of Southeast Asia's biggest food and drinks group was considering a tenor of 10 years or longer for the debt.

He gave no other details for the issue, but market observers said the debt could be broken up into portions.

"That should be scattered over several tranches. I doubt if they can raise that in one offer," said Benedicto Jose Arcinas, treasurer of Export & Industry Bank (EIBB.PS).

"It would depend on the pricing and the terms, but the market is liquid," he said.

Another banker from a foreign institution who asked for anonymity said: "I don't think that is executable in the local market."

San Miguel Brewery, the first brewery in Southeast Asia, has tapped HSBC and the state-run Development Bank of the Philippines as underwriters for the offer, banking sources said.

Corporate bonds comprise just a small portion of the domestic debt market, with the government being the largest issuer of debt in the Philippines. Only the government has sold local bonds with an offer size similar to that planned by San Miguel.

The brewery firm said in a disclosure to the stock exchange on Thursday it needed to have full oversight over its brands, a move that would help it keep margins under control as it stops royalty payments to parent San Miguel Corp.

"The acquisition will be financed through borrowings," the firm said in the disclosure, adding UBS would act as its financial advisor in valuing the beer brands and related assets.

The company said it expects to complete the transaction, which it valued at 32 billion pesos, by April. Apart from the brand acquisition, the company is considering buying from its parent the land on which its major breweries stand for 6.8 billion pesos.

Parent firm San Miguel said in a separate statement it would use proceeds from the sale to pay down debt and fund acquisitions. It plans to buy a majority stake in oil refiner Petron Corp worth about $675 million after acquiring 27 percent in utility firm Manila Electric Co in October.

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