SMGP seen to rely on parent firm for funding — CreditSights
SAN MIGUEL Global Power Holdings Corp. (SMGP) is expected to be primarily dependent on its parent company San Miguel Corp. (SMC) for funding support, financial research firm CreditSights said on Thursday.
“We believe [SMGP] will primarily rely on parental support from SMC to plug the refinancing gap,” CreditSights said in its report.
The firm maintained its “underperform” recommendation on the company. This follows SMGP’s announcement of its plans with the subsidiary of Manila Electric Co. and Aboitiz Power Corp. (AboitizPower) to develop an integrated liquefied natural gas (LNG) facility in Batangas valued at $3.3 billion.
Meralco PowerGen Corp. and AboitizPower, through a joint venture, will acquire 67% stake in SMGP’s gas-fired power plants: the 1,278 megawatt (MW) Ilijan power plant and the 1,320 MW combined cycle power plant.
The three companies will also invest in LNG import and re-gasification terminal owned by Linseed Field Corp.
CreditSights expects “strong near-term parental funding support and fresh asset/stake sales to cover the [US dollar perpetual bond] redemption up until May 2025.”
“While we acknowledge [SMGP’s] healthier FY24 credit outlook aided by an improved cost pass-through contractual mix, lower FY24E input thermal coal costs, and contribution from new capacities… we expect its free cash flows to remain firmly negative amid still-high capex towards the Batangas power project construction,” it said.
The firm said that the refinancing of US dollar perpetual bonds “is trickier” despite the refinancing of existing bank loans or local bonds due to “limited additional appetite towards [SMGP].”
SMC’s funding support could sufficiently cover only up to its power arm’s perpetual bond for April and May with the conglomerate’s capital expenditure needs for its “own sizable airport” and infrastructure.
“Although we welcome [SMGP’s] plans to sell 67% stake apiece in its Ilijan and Batangas power plants that would raise fresh cash… we note the company also plans to acquire a 33% stake in a large LNG terminal, and we are unsure of the net cash flow impact amid the lack of concrete details,” the firm said.
On Thursday, SMC’s shares went down by P0.50 or 0.48% to close at P103.30 apiece. — Sheldeen Joy Talavera
