“The capital markets show considerable interest in argentine shares and particularly in shares like San Miguel's”
Patricio Aguirre Saravia, CFO, tells us about the equity follow on process, the challenges faced and the excellent results that will allow San Miguel to continue growing as a global company.
What was the equity follow on process like? Why have you decided to do this just now?
The process started in July 2016, with the decision by the controlling group of shareholders to raise the capital required in order to implement the growth strategy we have outlined.
In first place, we set up a working group, not only in-house, but also externally, by hiring the services of three banks and two law firms that provided advice along the way. We worked with them in defining the target investor profile for the transaction and in preparing the documents to be submitted for approval to the external regulators, such as the Argentine Securities and Exchange Commission (Comisión Nacional de Valores, CNV) and the Stock Exchange, but also internally for the formal approval by the Shareholders' Meeting, the Board and branch offices.
Following some uncertainty in the market as regards the opening of the US market for lemons from the Argentine Northwest, we faced the dilemma of waiting for the situation to be resolved or doing the transaction at that time. The truth is that such possible opening is a potential situation that has no impact on the business in the short- or mid-term. At present, San Miguel exports fresh fruit from Uruguay and South Africa to this market, and the export volume expected from Argentina is small. Thus, it would not represent an incremental sales volume in the mid-term.
We assessed the market situation and saw that the timing in February was very good. All markets were on the rise and the interest in Argentina and the Merval were very strong. The capital markets show considerable interest in Argentine shares and particularly in shares like San Miguel's. These are shares that are only listed in the country, their capitalization is around half billion dollars, with global leadership positions in certain sectors, a strong charactered controlling group and an experienced professional management. For all these reasons, we decided to prioritize this favorable market context and move forward with the issuance in February.
What challenges did you face? What was the result?
Following the official presentation at the Stock Exchange, in mid-February, we had a very intense roadshow period where we held many meetings with potential investors. The challenge consisted in getting investors to know San Miguel better and explain the significant change that the company underwent over the last years, to become an Argentine multinational company with huge projects ahead. Investors entered the meetings thinking that San Miguel was a company with certain characteristics and left knowing that it was much more valuable.
The market saw the company as it was maybe 20 or 25 years ago, a lemon company from Tucumán. Those are our roots and our growth platform, and we are very proud of it, but we have grown a lot over the last years. Today San Miguel is a diversified company with a very strong industrial business and a balanced product portfolio, where sweet citrus (orange, mandarin, and grapefruit) grew to account for 50% of fresh exports, on the same level as lemons. The added value of the company is beyond production and is related to the comprehensive service that covers the whole logistic and commercial chain and the support areas.
This work had very good results. We raised the maximum amount of funds we have sought at a price above the one we expected, which implied a minimum discount on the price on the screen that the stock had at the beginning of the transaction. This happened due to the high demand, which allowed us to take higher offers and from the kind of investors we were looking for.
This transaction had two main objectives: firstly, raise the capital required to make the expected investments, and, secondly, add more liquidity to the share. To such end, it was necessary that many individuals and retailers participated so that later the share may have much daily trading. In this sense, the process was very successful because we achieved high demand at a good price with the "mix of investors" we were looking for.
What will be the impact of this for San Miguel in 2017? What is the investment plan?
The cash flow we are receiving will allow us to make the investments we have planned as part of our growth strategy. Both from the organizational side, with investments in productivity enhancements, in new fields, building of a processing factory in Uruguay, and on the non-organizational side, with the acquisition of companies we have planned in the short- and mid-term.
San Miguel is implementing a strategy defined with a 5-year horizon that implies significant growth. The next steps have to do with executing these investments and identifying new opportunities. It is not just about making investments, but also having them to produce the expected returns. This hard task will require the coordinated work of multiple areas within the company.
The investment plan we have includes amounts much higher than the one raised by the issuance. Thus, as we execute these investments, at the Finance area we have the challenge of seeking more funds. The new conditions in Argentina open new doors for us with longer term debt. Thus, one of the alternatives to get the funds required is associated with the possibility of taking on new debt and even refinancing the one we have.
What is the outcome of the process? What lessons have you learned from this?
It was something new, and a great experience. The last time that the company had had contact with the capital markets was 20 years ago. It was a learning process that helped us to rethink how we relate with the capital market, what our strengths are and how the market sees us.
In this sense, we are reshaping our whole investor relations strategy. We have already worked on redesigning the investors section in the web. But we continue working on more initiatives that allow us to relate much more proactively with this strategic public.
Additionally, it was a team work that required time and dedication from the whole company, not only from the Finance area. Perhaps the visible faces of the process were just a few, but there was an underlying hard work from all of us who form part of San Miguel.