San Miguel plans USD34 billion investments, eyes Saigon beer stake

San Miguel Corp. plans to invest USD34 billion in an oil refinery, an integrated steel complex and an ocean-tide power plant as the Philippines’ largest company by sales expands amid forecasts for robust economic growth in the country, according to its president.

The company, which sells nine of every 10 beers in the Philippines, is also “evaluating and may bid” for Saigon Beer Alcohol Beverage Corp., President Ramon Ang told reporters on March 31. Vietnam may provide an anchor to increase its brewery business as consumption in the country is growing at an annual rate of at least 10 percent, five times that in the Philippines, he said.

“The businesses we ventured into have matured, such that the company is in a very stable position,” Ang said, citing compounded annual 20 percent growth in recurring profit and a near fourfold increase in assets since 2008 following San Miguel’s diversification from food and drinks into non-allied industries such as toll roads and resources. Excluding one-off items, profit will rise at least 20 percent to about 60 billion pesos ($1.2 billion) this year, he said.

Election-related spending, remittances from Filipinos overseas and a booming outsourcing industry have helped raise sales of hot-dogs and beers, while record car sales boosted oil demand. The momentum is expected to stay strong this year, with gross domestic product forecast to rise 6.8 percent, Fitch Ratings said on March 29, when it kept its investment-grade rating and positive outlook on the Philippines.

Profit at the company that started as a brewer more than a century ago rose 80 percent to 52.2 billion pesos last year, boosted by higher sales at its oil, beer and food units. An 11.8 billion peso one-time gain from the sale of its telecommunication assets helped offset a 9 billion peso foreign exchange loss.

“Ang is trying to ride on the wave of Philippine economic growth,” said Astro del Castillo, managing director at investment advisory company First Grade Holdings Inc. “Like its previous infrastructure and industrial bets, these won’t make a quick buck, so it will take time for the stock to appreciate. San Miguel is for investors with a long-term view.”

San Miguel plans to build an oil refinery complex with a capacity of 250,000 barrels a day and an integrated steel plant, which will entail investments of $15 billion each. An ocean-tide energy project with initial capacity of 1,200 megawatts and costing $3.6 billion is also in the pipeline.

The oil refinery, which will also produce aromatics and petrochemicals, and the steel plant are under study and construction could take three-and-a-half years, while the power project may be completed in five, Ang said, declining to elaborate. San Miguel-owned Petron Corp., the nation’s largest oil refiner and retailer, said in January it’s seeking partners for a refinery it will build in southern Philippines.

Saigon Beer, Vietnam’s largest brewer with a 40 percent market share, has received government approval to hire consultants to advise the state-owned company’s planned stake sale this year. Heineken NV, Anheuser-Busch InBev NV and Asahi Group Holdings Ltd. are among seven foreign companies that previously registered to bid for stakes.

An initial public offering of its unit SMC Global Power Holdings Corp. may push through in the third quarter, Ang said, declining further details. In January 2014, Ang said as much as $1 billion will be raised from a maiden-share sale of up to 49 percent of the unit, which owns San Miguel’s power-plant ventures.

Ang’s expansion outside of food and drinks didn’t immediately boost San Miguel’s share performance, which has trailed the benchmark Philippine Stock Exchange Index since he was named president in 2002. While the  stock has gained 13 percent this year after rallying 85 percent in 2016, boosted in part by a windfall from the sale of its telecom assets, San Miguel underperformed relative to the index in six of the 10 years since 2007, when Ang obtained shareholders approval to expand into non-allied industries. The benchmark index has gained almost 7 percent this year after losing 1.6 percent in 2016. Bloomberg