San Miguel’s 1Q Debt Rocketed to the Moon with Php 172 Billion Growth! In 2017, PSE 30 Borrowed Php 10 for every Peso of Income Growth!
San Miguel’s management brandished double-digit revenue, core, and net income growth.
But a striking number stood out at the back page of their presentation.
San Miguel’s Debt exploded by 31.33% or by Php 171.645 billion to an astronomical Php 721 BILLION!
That’s right. San Miguel’s debt stock fast approaches the TRILLION milestone!
SMC’s 1Q 2018 debt explosion is just Php 2 billion shy of the cumulative annual debt of Php 173.9 billion it acquired during the past 5 years!
SMC’s Php 721 billion of 1Q 2018 debt stock accounted for 87% of 2017’s annual revenues while its Php 171 billion 1Q quarter debt growth represented about thrice last year’s net income growth of Php 54.8 billion!
SMC’s sale of Meralco and telecom assets has hardly made a dent on its balance sheets through the years.
And such massive debt accumulation has been justified as part of the build, build, and build political (really spend, spend and spend) expenditures
San Miguel’s business model survives principally because of the subsidies or implicit transfers provided by the BSP through zero bound and QE policies. This model cannot thrive under free market conditions.
And as I have been saying, SMC’s model looks like Hyman Minsky’s Ponzi finance where sustained appreciation of asset values and debt rollovers substitute for the paucity of operating cash flows and income stream.
Perhaps in anticipation of rising rates, SMC’s management has opted to front load on debt.
I am reminded by the recent liquidation of the second largest British construction/ government contractor firm Carillion which was sunk under a quagmire of debt.
Spend, spend and spend is not equivalent to a monopoly "get out of jail free" card.
SMC isn’t alone though. Many composite members appear to be replicating SMC’s model
Proof? In 2017 debt of PSEi 30 firms jumped by 10.67% or Php 253.236 billion!
Since holding firms include debt of their subsidiaries, the latter has been excluded. Thus, the debt of only 16 firms have been covered in the above
The above represents the net income growth of the 30 PSEi firms in 2017. PSE companies generated a net income growth of 4.21% or Php 24.948 billion.
In contrast, debt expanded by 10.67% or by Php 253.236 billion.
So PSE companies generated about Php 10 of debt for every peso of net income growth!
And yet the Phisix returned by a zany 25.11%! Such demonstrates how markets have become detached with reality.
Pardon me for the apples to oranges comparison: PSE 30 in net income versus PSE 16 in debt. If the debt of all PSE 30 would be included, the gap would be wider! But that would be double counting.
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