SMBI keeps top credit rating

30 June 2013

Philippine Rating Services Corporation (PhilRatings) has maintained its highest PRS Aaa issue rating for San Miguel Brewery Inc.'s (SMBI) outstanding bonds totaling P45.21 billion despite the imposition of new sin taxes in January.

The bonds consist of the following tranches: Series B worth P22.40 billion maturing in 2014; Series C worth P2.81 billion maturing in 2019; Series D worth P3.00 billion maturing in 2017; Series E worth P10.00 billion maturing in 2019; and Series F worth P7.00 billion maturing in 2022.

PhilRatings said it considered SMBI's high cash from operations and profitability which comfortably support debt servicing; sustained financial flexibility and adequate capitalization; and dominant market position domestically.

It also factored in the benefits of SMBI's experienced management and production team, with technical support from Kirin Holdings as well as the stable inflationary environment and robust consumer spending.

''The rating also considered changes in the tax regime on alcoholic beverages implemented last January 1, 2013,'' PhilRatings said.

The implementation of the Sin Tax Reform Law resulted in significant increases in the selling prices of beer. Historically, price increases tend to temporarily dampen the demand for beer.

''This effect, however, is in time reversed as consumers adjust to the new normal prices for beer,'' said PhilRatings.

PhilRatings said it believes that ''despite the implementation of the Sin Tax Reform Law, SMB's profit performance will remain strong and will provide more than adequate coverage of its current obligations.''

It said that this is backed by the continued increase in household consumption expenditures by 6.1 percent from 2011 to 2012 and a low inflationary environment, with inflation averaging 3.2 percent in 2012.

The ratings agency noted that SMBI has been able to maintain its strong profit performance in 2011 to 2012 while its debt to equity ratio also improved from 1.9x to 1.7x.

''These affirm the company's strong profit performance and good debt servicing capability,'' PhilRatings said.

In 2014, Series B of the company's rated bonds worth P22.40 billion will mature. Given the company's high profitability, cash generating ability and cash on hand of P24.97 billion as of the end of the first quarter of 2013, PhilRatings said SMBI should be able to settle the obligation in full and on time.

Furthermore, the company's adequate capitalization and financial flexibility provide it with other options to service this particular maturity should it choose to do so.

In the medium term, SMBI will continue its volume raising efforts locally by taking advantage of emerging market segments resulting from changes in lifestyles, demographics and incomes. It will also bank on emerging trends and develop new distribution channels.