San Miguel Corp. is embarking on the biggest capital-raising event in the local stock market with a retail offering of preferred shares worth as much as P80 billion this August, harnessing the cash-awash financial system to replace costly preferred shares issued three years ago.
The offering will consist of a new series of perpetual bonds to refinance the P72 billion worth of preferred shares that were issued to stockholders—including the government—that agreed to convert their common shares to preferred stocks in 2009. If issued at the maximum offer size of P80 billion, this will be the single-largest capital market activity in the country exceeded only by the Bureau of Treasury’s retail treasury bonds (RTBs).
Perpetual bonds are hybrid instruments that are considered equity from the point of view of the issuer but with some features of a debt instrument such as a fixed return.
“It’s a proposition to all interested to buy a good quality issuer and (this offering) is open to buyers locally and offshore,” a source privy to the transaction confirmed to the Inquirer.
For the landmark offering, SMC is targeting retail investors that have no other investment outlets except the Bangko Sentral ng Pilipinas’ special deposit accounts (SDAs) or government bonds. There are about P1.57 trillion worth of funds locked up in the SDAs as of end-March, representing the amount of excess domestic liquidity that can look for higher yields.
Similar to the first series of preferred shares issued by SMC three years ago (SMCP1), the new series of perpetual bonds will be listed on the PSE to allow investors wanting liquidity to sell through the exchange.
The proposed perpetual bonds are also seen as attractive from a tax perspective. “The tax is only 10 percent for retail investors while corporate buyers are tax-exempt,” the source said.
The offering will still have to be approved by the Securities and Exchange Commission but the initial target is to sell the preferred stocks by August and issue them by September.
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