SMC shares fall, recover as Ang steps in

MANILA, Philippines - Shares of diversified conglomerate San Miguel Corp. (SMC) plummeted early yesterday before bouncing back to gain at the end of trading after a report that connected it to a “highly leveraged conglomerate” at risk of default was downplayed.

Stocks of the Ang-led corporate powerhouse lost as much as 9.6 percent to P76.40 in early trades before recovering in the afternoon to settle 1.49 percent higher at P85 apiece.

The late rally on SMC shares, nonetheless, failed to lift the Philippine Stock Exchange index (PSEi) which eased 0.13 percent or 8.83 points at 6,574.72.

This was despite officials clarifying a newspaper report last July 14 that quoted the International Monetary Fund’s findings last April, warning the country against large conglomerates with high exposure to bank loans.

The report, written by Manila Times columnist Rigoberto Tiglao, quoted the IMF as saying that a “highly leveraged conglomerate” – which it did not name – is at risk of default, although that risk is currently “low.”

SMC, which has expanded from food and beverage to oil and transportation, initially took the brunt from investors before company president and chief executive officer Ramon Ang stepped in to calm the market.

“Yes SMC can buy back shares and yes SMC has enough funds to do that anytime,” Ang said in a text message.

The statement, First Grade Finance’s analyst Astro del Castillo said, “diffused” investor concerns “on the company’s financial standing.”

He explained Ang is simply saying that SMC has enough funds not only to buy back shares but also to finance its operations.

SMC, the Philippines’ most acquisitive company, is raising $4 billion from a planned sale of its power assets to fund expansion in industries and infrastructure, Ang earlier said. SMC holds a 32.8-percent stake in the Manila Electric Co., the country’s largest power distributor.

For his part, IMF resident representative Shanaka Jayanath Peiris, in an e-mail to reporters, clarified the IMF Article IV report made “no identification of particular company” at risk of default any time soon.

The Philippines’ Risk Assessment Matrix — which was included in the annual evaluation of IMF member-countries— exposed both domestic and external risks to a particular economy, including the “low likelihood” of failure from a “highly-leveraged conglomerate.”

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., on the other hand, said the BSP is continuously monitoring banks loan exposures, including those to conglomerates, but so far sees no immediate concern.

“Risks are always present in the financial system in any economy. That is why we continue to monitor risks. We look for possible stress points,” Tetangco told reporters.

“But even on our stress tests, it showed that even with significant write-downs, banks will still be able to absorb it and remain above the minimum capital requirement,” he added.

Peiris said the concern on a particular company is just one of the risks facing the Philippines, which could more be affected by slowing growth in Europe, capital inflow reversal from emerging markets and rising asset prices.

“Notwithstanding these risks the 2013 Article IV consultation staff report presents a favorable economic outlook based on the solid macroeconomic fundamentals of the Philippines,” he pointed out.