Moodyís gives SMC stable rating after CCBPI sale

Moodyís Investors Service has affirmed the ìBa1î local currency corporate rating of San Miguel Corp. after the food and beverage giant closed a deal to sell its entire 65-percent stake in Coca-Cola Bottlers Philippines Inc. (CCBPI) to Atlanta-based Coca-Cola Co. for $590 million.

ìThe outlook remains stableÖ and continues to reflect the size, diversity and profitability of its operations, as well as the companyís strong brand equity and commanding positions in most of its markets, which provide it with a strong platform for cash flow generation,î Moodyís said in a statement.

Moodyís said there is a possibility the rating could be raised should San Miguel be able to post continued growth overseas.

Moodyís vice-president and senior analyst Renee Lam said the ìreduction in revenue and operating cash flow as a result of the sale is offset by San Miguelís plan to apply the sale proceeds to repay short-term debts, which will improve its short-term liquidity and lower its leverage.î

San Miguel is to receive $370 million upon closing of the transaction which would be used to retire a portion of its short-term debt. The balance will be paid in tranches and used to further improve existing businesses.

The ratings agency noted that historically, San Miguel has relied heavily on short-term bank loans, which it considers to be a rating negative.

Moodyís expects the loss of revenue from the divestment of CCBPI to be not that significant, pointing out that for the nine months ending September 2006, the local bottler accounted for only 15 percent and three percent of San Miguelís consolidated revenue and operating profits, respectively.

It, however, expressed concern that the rating might be affected should San Miguel fail to immediately address its debt obligations either due to additional acquisitions. A $3.6-billion expansion started in 2000 has inflated San Miguelís debts and raised financing costs.

San Miguel, which makes nine of every 10 bottles of beer sold in the Philippines, has been buying companies at home and abroad after reaching saturation point in its home market for beer, softdrinks, liquor, processed food, poultry and dairy.

It took over National Foods, Australiaís largest producer of fresh diary products, in late 2005 for about $1.5 billion ó its largest acquisition. It also owns 100 percent of Berri Ltd., an Australian juice maker.

The 117-year-old San Miguel, one of the Philippinesí oldest corporations, is 20 percent owned by Japanís Kirin Brewery Co. Ltd. and 10.8 percent by listed investment holding firm SM Investments Corp.