The nearly P800 billion long-term debts of the San Miguel Corporation group, the bulk of which are from its energy subsidiary SMC Global Power, are making the market apprehensive over the outlook of the company and the impact of a probable default.

A stock analyst said the anxiety is brought by the situation in which the long-term obligations of the company are even higher than its current assets and triple its market capitalization of the total amount of the company's shares of stocks.

According to the market expert, the high debt level will have an effect of draining the resources of the company in terms of interest payments.

"Shareholders' interest is on the cash flow of the business since interest payments reduce liquidity," he added.

The interest payments reduce dividend payouts for one, the analyst added.

Fitch Ratings research unit CreditSights said the rising interest and debt payments may also affect key projects of the company.

"SMC is constructing a new mega airport near Metro Manila which will further increase its CAPEX requirements this decade. Given the worsening financial profile of SMC Global Power, any concerns over its hypothetical default raise fears of triggering a cross-default on SMC," the report said.

The highly-leveraged operation of the Asian conglomerate was also a concern raised by Bloomberg Intelligence which said may impair the ability of the parent to come to the rescue of its subsidiaries in a financial fix.

Experts said SMC's diversified profile makes it resilient for now but a number of its businesses including power, infra, and cement, require large upfront capital costs and have a long gestation period that creates more uncertainties on its profitability.

Market pundits said the concern of the market is that SMC is increasingly borrowing to pay off debts rather than investing hence, creating a domino effect on degrading its financial profile.

Central to the debt problem of the company is its energy unit SMC Global Power which has to shoulder losses from its straight-pricing contracts with Meralco.

Based on the company's financial report, its liabilities totaled P394 billion as of 31 March 2022.

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, according to its financial records.

Current liabilities or debts that are falling due included accounts payable and accrued expenses of 60.221 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 on being bought back before maturity.

The crux of the matter is the bulk of the financial problem that it is now embroiled in is its failure to exercise due diligence as expected is a huge concern.

SMC Global Power did not make enough provision for a sudden spike in the prices of coal or the depletion of natural gas supply from the Malampaya field which are events that businesses have been forewarned about.

Other companies employed hedging on supply in anticipation of the difficult situation.

The record-setting debts that the conglomerate had recently obtained are a source of extreme worry to many.