San Miguel plans $34bn Philippines energy and steel investments

The country's biggest company aims to build an oil refinery, steel plant and ocean power facility as the economy continues to boom and the firm's profits increase.

Soaring vehicle sales have prompted the Philippines' biggest company to build an oil refinery, along with a steel plant and an ocean power facility as the economy remains among the fastest-growing in the world. Mike Young / The National
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San Miguel plans to invest US$34 billion in an oil refinery, an integrated steel complex and an ocean-tide power plant as the Philippines’ largest company by sales expands amid forecasts for robust economic growth in the country, according to its president.

“The businesses we ventured into have matured, such that the company is in a very stable position,” the president Ramon Ang said, citing compounded annual 20 per cent growth in recurring profit and a near fourfold increase in assets since 2008 following San Miguel’s diversification from food and drinks into non-allied industries such as toll roads and resources. Excluding one-off items, profit will rise at least 20 per cent to about 60 billion pesos (Dh4.4bn) this year, he said.

Election-related spending, remittances from Filipinos overseas and a booming outsourcing industry have helped the economy, while record car sales boosted oil demand. The momentum is expected to stay strong this year, with GDP forecast to rise 6.8 per cent, Fitch Ratings said last week, when it kept its investment-grade rating and positive outlook on the Philippines.

Profit at the company that started more than a century ago rose 80 per cent to 52.2bn pesos last year, boosted by higher sales at its oil, beer and food units. An 11.8bn peso one-time gain from the sale of its telecommunication assets helped offset a 9bn peso foreign exchange loss.

“Ang is trying to ride on the wave of Philippine economic growth,” said Astro del Castillo, a managing director at the investment advisory company First Grade. “Like its previous infrastructure and industrial bets, these won’t make a quick buck, so it will take time for the stock to appreciate. San Miguel is for investors with a long-term view.”

San Miguel plans to build an oil refinery complex with a capacity of 250,000 barrels a day and an integrated steel plant, which will entail investments of $15bn each. An ocean-tide energy project with initial capacity of 1,200 megawatts and costing $3.6bn is also in the pipeline.

The oil refinery, which will also produce aromatics and petrochemicals, and the steel plant are under study and construction could take three and a half years, while the power project may be completed in five, Mr Ang said, declining to elaborate. San Miguel-owned Petron, the nation’s largest oil refiner and retailer, said in January it was seeking partners for a refinery it will build in southern Philippines.

While the stock has gained 13 per cent this year after rallying 85 per cent in 2016, boosted in part by a windfall from the sale of its telecom assets, San Miguel underperformed relative to Philippines Stock Exchange in six of the 10 years since 2007, when Mr Ang obtained shareholders approval to expand into non-allied industries. The benchmark index has gained almost 7 per cent this year after losing 1.6 per cent in 2016.

* Bloomberg

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