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San Miguel in Talks With Cayman Airways for Possible Investment

San Miguel Corp. (SMC), the Philippines’ biggest company, and affiliate Philippine Airlines Inc. are in talks with Cayman Airways for a possible investment.

Discussions with the Cayman Islands government and the state-owned carrier cover “a number of investment opportunities,” Ramon Ang, president of both San Miguel and Philippine Air, said today in a mobile-phone message. He didn’t elaborate.

Philippine Air is in talks to invest in a foreign carrier, Ang said in June, as he applies the same strategy of expanding through acquisitions to build up San Miguel. The brewer of the century-old San Miguel beer brand has expanded from food and drinks to industries including oil, power and infrastructure to meet a target of doubling sales.

“San Miguel’s investment in Cayman Airways may turn out to be a really wise investment, but it needs to communicate the strategy better,” said Jomar Lacson, an analyst at Campos Lanuza & Co. in Manila.

San Miguel rose 0.2 percent to 109.20 pesos in Manila trading yesterday. The stock has lost 6.5 percent this year, compared with a 25 percent gain for the benchmark Philippine Stock Exchange Index.

The discussions with Cayman Airways were reported by the Cayman Free Press earlier today. The airline operates six planes serving Caribbean and U.S. destinations, according to its website.

Fleet Expansion

Talks between Cayman Airways and San Miguel are “very preliminary” and include “reviewing the ability to code share, to provide aircraft operations and other strategic areas,” Cayman Islands Premier McKeeva Bush told lawmakers on Nov. 9, according to a transcript provided by his office yesterday when asked for comment.

San Miguel may also buy non-voting shares in the airline, though the approval process is “lengthy,” Bush said.

Ang has said San Miguel’s acquisition of stakes in PAL and affiliate Air Philippines Corp. would help boost sales this year to almost $20 billion and to $30 billion by 2017.

PAL agreed to purchase 64 aircraft from Airbus SAS this year and is in talks with Airbus and Boeing for 35 more wide- body aircraft to complete a 100-plane fleet expansion and upgrade, Ang said Oct. 20. PAL’s long-haul expansion plans depend on the country improving safety standards, Ang said earlier this year.

European Blacklist

The Asian nation is blacklisted by the European Union and has a Category 2 rating from the U.S. Federal Aviation Administration, meaning it doesn’t meet international regulations. The Philippines aims to address the safety issues by February, Transport Secretary Joseph Abaya told reporters today.

San Miguel has bid to make a $5 billion acquisition and separately was in talks with regional carriers, Ang said last month.

San Miguel owns the Philippines’ largest oil company, Petron Corp. (PCOR), and is the country’s biggest electricity producer. It bought most of Esso Malaysia Bhd in March, a month before it announced the investment in PAL. San Miguel and billionaire Lucio Tan, its partner in PAL, may invest $6 billion to build a new airport in Manila, Ang said on Sept. 28.

The company has announced 35 deals worth more than $7 billion in the past decade, according to data compiled by Bloomberg.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editors responsible for this story: Lars Klemming at lklemming@bloomberg.net; Neil Denslow at ndenslow@bloomberg.net

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