SMC’s debt scourge
With a pile of obligations, SMC Global Power “could soon face fundraising urgency”, according to Bloomberg Intelligence.
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Daily TribuneWith a pile of obligations, SMC Global Power “could soon face fundraising urgency”, according to Bloomberg Intelligence.
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In a credit research study on the troubled energy arm of Asian conglomerate San Miguel Corp., think tank Bloomberg Intelligence said SMC Global Power is saddled with multiple financing challenges and that its credit profile is "deteriorating."
The description proves to be an understatement as the biggest operator of power plants in the country is neck deep in borrowings.
SMC's energy unit is in a debt abyss based on a recent prospectus it issued for a bond float, it admitted total liabilities of P394 billion as of 31 March 2022, of which P197.6 billion are net debts.
The disclosure paper showed the non-current liabilities of SMC Global Power included lease obligations of P53.4 billion and long-term debt (net of current maturities and debt issue costs) of P169.597 billion.
Current liabilities or debts that are falling due included accounts payable and accrued expenses of P60.221 billion and lease liabilities of P19.809 billion.
It added that outstanding loans of P73.7 billion have pre-payment stipulations which means that it has penalty clauses if bought back before maturity.
In layman's terms, SMC will have a hard time realizing savings on interest payments for these loans.
SMC made the full disclosure since investors require this as the basis for their decision on whether to buy debt papers that SMC Global Power is issuing to fund its aggressive offensive in the energy sector.
In the documents issued to its prospective lenders, the company said it employs a system of financial prudence and good corporate governance to manage the risks relating to its huge debts.
In detail, SMC Global Power revealed it has "significant long-term debt, finance lease obligations, and perpetual capital securities."
As of 31 March 2022, the long-term debt of SMC Global Power consisted of: P74 billion fixed rate bonds listed on the Philippine Dealing and Exchange Corp; P14 billion and P5 billion fixed rate 7-year and 5-year term loan facilities, respectively; $1.05 billion term loans, P38 billion term loan of SMC Consolidated Power Corp; another P17 billion term loan of SCPC under a 12-year Omnibus Loan and Security Agreement; $172 million loan of Masinloc Power Partners Co. Ltd. under an Omnibus Refinancing Agreement; and $473 million loan of MPPCL under an Omnibus Expansion Financing Agreement.
In May 2014 and August 2015, SMC Global Power issued undated subordinated debt papers amounting to $300 million for each issuance, which has since been redeemed.
In addition, the company issued redeemable perpetual securities amounting to $650 million which was used to acquire the Masinloc power plant in March 2018.
On 25 April 2019, the company issued $500 million in senior perpetual capital securities. On 3 July 2019, it again issued $300 million in senior perpetual capital securities.
On 5 November 2019, the Company issued $500 million in senior perpetual capital securities and on 21 January 2020, $600 million in senior perpetual capital securities was floated.
On 21 October 2020, $400 million more in senior perpetual capital securities were offered followed by an issuance of $350 million in senior perpetual capital securities on 15 December 2020.
On 9 June 2021, the company borrowed $600 million via senior perpetual capital securities followed by an issuance of $150 million in senior perpetual capital securities on 15 September 2021.
On 21 January 2022, the company availed of $200 million from a three-year term loan facility agreement executed with foreign banks.
The initial loan amount under the facility agreement of $100 million was increased to $200 million on 16 December 2021.
With a pile of obligations, SMC Global Power "could soon face fundraising urgency", according to Bloomberg Intelligence.
A cash shortfall of between P46.5 billion and P57.8 billion was projected by the reputable research firm before the end of the year.
The bottom line is that the SMC energy subsidiary is not expected to emerge from an ocean of red ink anytime soon with its highly leveraged operations.
