‘Neutral’ outlook kept for San Miguel
SAN Miguel Corp.’s (SMC) successful bid for the P171-billion Ninoy Aquino International Airport (NAIA) modernization project will have a “manageable impact” on its credit profile despite the huge capital expenditure (capex) involved, a Fitch Group unit said on Monday.
A San Miguel-led consortium that also includes RMM Asian Logistics Inc., RLW Aviation Development Inc., and South Korea’s Incheon International Airport Corp. was announced last week as the winner of a 15-year contract to rehabilitate and operate the NAIA, with the possibility of a 10-year extension.
SMC holds a 33-percent stake in the SMC SAP & Co. consortium. The group committed to make an up-front payment to the government of P30 billion upon execution of the concession agreement, along with an annual payment of P2 billion plus “82 percent of the revenues during the term of the concession agreement.”
The government should earn some P900 billion in total over the course of the project, SMC said in a disclosure on Monday.
Airport operations are expected to be turned over by the Manila International Airport Authority (MIAA) to the consortium six months after the concession agreement is executed.
Execution of the concession deal is tentatively set for next month by and among the Department of Transportation, the MIAA and the consortium.
Fitch unit CreditSights Inc. said the bid win demonstrated SMC’s “continued aggressive capex appetite that could further strain its credit profile.”
SMC’s capital spending is expected to be around P200 billion annually over the next two years given its ongoing airport, infrastructure and power projects, which could result in a “persisting deep free cash burn,” the Fitch unit said.
The conglomerate is likely to fund its share of the project cost via a 70-30 debt-equity mix and splitting the project capex — estimated to be around P122.3 billion for the first six years of the concession — among the partners is seen to help ease cash flow pressure.
CreditSights holds the view, however, that the government revenue share was rather “high” and could weigh on earnings, even after the project is completed. It said the “unclear” company profile of SMC’s consortium partners RMM Asian Logistics and RLW Aviation also raised governance and higher capex risks.
“Based on these assumptions, we estimate SMC’s pro-forma net leverage to worsen modestly to 7.8x–8.0x, which we see as manageable,” the financial research firm said that while maintaining its market perform recommendation, which indicates a neutral outlook for the company’s shares.
CreditSights said that a modernized NAIA would “complement SMC’s greenfield international Bulacan airport,” set to be completed in 2027, as the two projects could help drive revenue, improve cost synergies, and give SMC “dominant control over Manila air passenger traffic even amid slight passenger cannibalization concerns.”
On Monday, San Miguel shares dropped by P1, or 0.93 percent, to P107 apiece.