RATING NEWS May 5, 2021 The Pioneer Domestic Credit Rating Agency

San Miguel Corporation’s Bond Issuance of up to P30 billion Receives Highest Rating

Philippine Rating Services Corporation (PhilRatings) has assigned an issue credit rating of PRS Aaa for ’s (SMC), proposed bond issuance of P20 billion, with an Oversubscription Option of up to P10 billion. This will be the first issuance of SMC in relation to its three- year Shelf Registration of Bonds of up to P50 billion from 2021 to 2024. PhilRatings also maintained its issue credit rating of PRS Aaa, with a Stable Outlook, for the company’s P60 billion in outstanding rated bonds.

Obligations rated PRS Aaa are of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong. PRS Aaa is the highest rating assigned by PhilRatings.

A Stable Outlook, on the other hand, indicates that the assigned rating is likely to be maintained or to remain unchanged in the next 12 months.

The assigned ratings reflect SMC’s well-entrenched market leadership and the solid track record of subsidiaries; its ample liquidity, supported by stable cash flow generation; its manageable leverage position, as the progressive completion of capital-intensive projects reduces the need for debt financing, going forward; and its experienced management team, providing a large degree of assurance on the company’s bullish growth strategy and resilience.

PhilRatings’ ratings are based on available information and projections at the time that the rating review was performed. PhilRatings shall continuously monitor developments relating to SMC and may change the ratings at any time, should circumstances warrant a change.

SMC is one of the largest conglomerates in the , with diversified businesses ranging from beverages, food, packaging, fuel and oil, energy, infrastructure and cement, and with investments in property, car distributorship and banking services. The Company’s major subsidiaries enjoy strong market positions. These companies include: San Miguel Food and Beverage, Inc. (SMFB), a widely- recognized food and beverage company which holds market-leading positions in the beer, spirits and various food categories; San Miguel Yamamura Packaging Corporation (SMYPC), a leading packaging company which provides total packaging solutions to major food, pharmaceutical, beverages and personal care manufacturers; Petron Corporation (Petron) a leading integrated oil refining and marketing company in the Philippines, with an over-all market share of 24% as of the first half of 2020 (1H2020); SMC Global Power Holdings Corporation (SMC Global Power), one of the Philippines’ largest power companies, controlling 4,697 megawatts (MW) of combined capacity as of December 31, 2020, and which benefits from diversified fuel sources (including natural gas, coal and hydroelectric). SMC Global Power estimates its market shares of the National, Luzon, and Mindanao Grids at 20%, 27%, and 8%, respectively, as of December 31, 2020; and San Miguel Holdings Corporation (SMHC), the Group’s infrastructure arm which holds the concession rights to construct, manage, and operate one of the

Page 1 of 2 country’s largest infrastructure networks. SMHC built the Tarlac-Pangasinan-La Union Expressway (TPLEX), (SLEX), Stages 1, 2 and 3, the Southern Tagalog Arterial Road (STAR), the NAIA Expressway (NAIAx), and Bulk Water Supply Project. It also operates and is currently expanding the Boracay Airport, while development works for the following projects are presently under progress: Skyway Stage 4, SLEX Toll Road 4 (SLEX-TR4), SLEX Toll Road 5 (SLEX-TR5), Mass Rail Line Transit Line 7 (MRT-7), River Expressway (PAREX), and the International Airport. SMC benefits from its diversified business portfolio, deemed mostly as necessities, which are basic for daily living, amid the pandemic and quarantine restrictions. Furthermore, SMC’s management team is considered to have a solid background in managing the company’s operating environment, enabling the company to remain strong, resilient and bullish on its mid- to long-term prospects amid the ongoing COVID-19 pandemic.

Consolidated net income in 2H2020 amounted to P25.9 billion, reversing the 1H2020 net loss of P3.99 billion that was largely due to the economy’s contraction and quarantine restrictions. The improvement of the performance in the second half resulted mainly from the sustained recovery of all major businesses, combined with effective cost-saving initiatives implemented throughout the SMC Group. Despite the recovery in 2H2020, though, consolidated net income in 2020 still dropped by 55% to P21.9 billion.

Net cash flows provided by operating activities remained positive, amounting to P50.9 billion in 2020. Operating cash was mostly used for investments; in particular, additions to plant, property and equipment (PPE), as well as other non-current assets. As of 2020, current ratio stood at 1.6x. Cash from operations will continue to be positive for the forecast period 2021-2027. Cash outlay for PPE and other non-current assets will be highest in 2021 – 2023 as such will be allotted for the completion and operation of SMC’s major projects.

As of end-2020, debt to equity ratio1 stood at 1.92x, an improvement from 2.16x in 2019 and within historical levels. Equity went up by 14% to P655.1 billion, mostly due to the balance of capital securities, amounting to P28.2 billion in 2020. The capital securities pertain to the issuance of US$500 million in senior perpetual capital securities (SPCS) and redeemable perpetual securities (RPS), net of documentary stamp taxes and other expenses directly related to the issuance.

1 Debt to equity ratio is computed by SMC according to the following formula: Total Liabilities / Equity

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