March 30, 2014

SMPH plans bond issuances this year

Various news reports today quoted the SM Prime Holdings (SMPH) chief finance officer as saying the company plans to issue P20b worth of seven- to 10-year peso retail bonds and up to US$300m worth of five- to seven- year syndicated dollar debt by the second half of the year. Proceeds will be used to finance its local expansion as well as land banking and mall development in China.

The company has just acquired a 10-hectare property in Jiangsu on which it intends to put up a mall whileit is negotiating to acquire two more sites. Meanwhile, SMPH is adding 600,000 sqm in gross floor area this year with the opening of two new malls and expanding three of its existing malls. It is also planning to launch 11,000-12,000 residential units this year.

Our take: SMPH's expanded balance sheet after the corporate restructuring should enable it to accommodate additional borrowing to finance expansion plans. Net gearing stood at 47% as at end-2013. The market will tend to take this positively over any equity issuances.

However, this should also mean additional interest expenses which may temper earnings growth next year. Meanwhile, the calibrated residential project launches should help allay fears on its residential business unit's ability to keep inventory at reasonable levels and spur earnings growth. – WealthSec