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Ang’s Buyback Proposal Spurs Recovery in San Miguel Shares

San Miguel Corp. shares recovered from a slump after company President Ramon Ang said the largest Philippine company may buy back its stock to restore investor confidence dented by suggestions of a debt default.

“I’ll go to the board to protect the investing public,” San Miguel President Ramon Ang said today in an interview at his office in Manila, where the company is based. “At worst, we can buy back all the stock and make the company private.”

The stock, which fell as much as 8.8 percent during the day in Manila trading, closed up 1.5 percent to 85 pesos. The shares had dropped 6.8 percent yesterday to 83.75 pesos, the lowest since Oct. 29, 2010.

Ang said the slump was triggered by a July 14 Manila Times website report that said the International Monetary Fund had warned the government the economy faces a risk that a “highly leveraged conglomerate,” or one part of it, could default on its debt. Neither the newspaper, nor the IMF report it cited, identified a particular company. The article “frightened the investing public,” Ang said.

“Investors are speculating San Miguel is the conglomerate being referred to because most of the attributions fit the company,” said Astro Del Castillo, managing director at Manila-based brokerage First Grade Finance Inc.

The shares have slumped 19 percent this year, the second-biggest percentage loss in the Philippine Stock Exchange Index, which has gained 13 percent in the same period.

‘Subjective Assessment’

“The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline at the time of discussions with the authorities,” Shanaka Peiris, IMF resident representative to the Philippines, said today in an e-mailed statement. There was no identification of a particular company, he said.

The Bangko Sentral ng Pilipinas is monitoring risks and looking at possible stress points, central bank Governor Amando Tetangco said today in Manila. Banks in the Southeast Asian nation can absorb significant writedowns, he said.

“Debt servicing problems at a domestic conglomerate -- while a low probability event -- could lead to sharply higher funding costs, undercapitalized banks, and a domestic credit crunch that pulls down growth sharply given the relatively concentrated loan portfolios of many banks,” the IMF said in its report published in April.

San Miguel, the country’s most acquisitive company, plans to raise about $4 billion selling power assets to help fund an expansion into industries and infrastructure. The company that started making beer before the country declared independence from Spain more than 100 years ago has made more than $5.6 billion worth of purchases that include investments in Manila Electric Co. and oil refiner Petron Corp.

‘Strong, Healthy’

“Our common shareholders shouldn’t be afraid because the company has a very strong balance sheet and very healthy operations,” Ang said. “San Miguel will weather anything.”

The company had 152.3 billion pesos ($3.5 billion) in cash and near cash at the end of the first quarter, according to data compiled by Bloomberg. The amount is 6.2 percent more than in the same period in 2012. San Miguel seeks to boost revenue to $50 billion in five years after sales rose 30 percent to 699 billion pesos, with oil and energy accounting for 60 percent of sales.

“A buyback is actually good because that will give weak hands an opportunity to leave and it will improve earnings per share,” said Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc. “San Miguel has the resources to initiate a stock buyback plan. The drop in share price was sudden and overdone.”

San Miguel’s consolidated net debt was 239.27 billion pesos at the end of March. That gave it a ratio of 3.1 against 12-month earnings before interest, taxes, depreciation and amortization, below a multiple of 5 allowed under an agreement with creditors, Ang said.

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