San Miguel Plans Meralco Stake Sale to Fund Oil, Gas Expansion

San Miguel Corp. plans to sell its 32.8 percent stake in Manila Electric Co. (MER) worth $3.4 billion to fund its expansion in oil and gas, President Ramon Ang said.

The Philippines’ largest company by sales may sell the stake this year, Ang said in a mobile-phone message reply to questions. San Miguel and units San Miguel Pure Foods Co. Inc. and SMC Global Power Holdings Corp. own about 370 million Manila Electric shares trading at 385.20 pesos each. The stake is worth 142.5 billion pesos, based on Bloomberg calculations.

San Miguel, in a stock exchange filing yesterday, said parties have expressed interest to own a stake in the Philippines’ largest electric utility and it’s considering options including a strategic sale. Overseas oil and gas fields that can produce a million barrel per day are projects that San Miguel plans to add to its portfolio, Ang said on March 6.

The company that started brewing beer more than a century ago acquired the bulk of its Manila Electric shares at 90 pesos each in 2008, a fourth of today’s price, as it expanded from food and drinks to industries including airlines, oil and energy to triple returns and bolster sales.

San Miguel revenue climbed 30 percent to 698.9 billion pesos or $16.7 billion in 2012, missing a $20 billion goal. The company seeks to boost revenue to $50 billion in five years and it’s looking at investing in oil and gas projects, one of which generates $5 billion in sales annually, Ang said on March 15.

“San Miguel, after a series of acquisitions, is realigning its portfolio,” Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc. (BDO) analyst said. “It looks like it’s just flipping assets but it’s not. It sees a good opportunity and it has an asset in a venture that it doesn’t control so why not shift the resource to a business it can control and generate better returns.”

First Pacific Co. Ltd through Beacon Electric Asset Holdings Inc. owns 48.3 percent of Manila Electric, according to data compiled by Bloomberg. The share price of the utility, which sells power to the capital and nearby provinces, has risen 48 percent this year.

San Miguel shares rose 0.8 percent to 94.30 pesos at the noon trading break in Manila. Manila Electric declined 0.5 percent. The Philippine Stock Exchange (PCOMP) index dropped 1.3 percent, set for a third day of declines.

First Pacific may boost the group’s stake in the utility at the right price, its Chief Executive Manuel Pangilinan said last month. Ang and Pangilinan, known for his initials MVP, compete for Philippine roads and airports.

“It’s really attractive for San Miguel to sell Meralco if they find a buyer,” said George Ching, an analyst at COL Financial Group Inc. (COL) “At market prices, the purchase is quite substantial and that could make the transaction hard to complete. For MVP, he would get an opportunity to have a partner who doesn’t compete with his group in other sectors.”

To contact the reporters on this story: Cecilia Yap in Manila at cyap19@bloomberg.net; Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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