March 28, 2014 — MANILA – (UPDATED 1:13 p.m.) The SM Group is setting aside P80 billion this year for its capital expenditures, and is looking to an upstart strip mall developer accelerate its food retail expansion in the underserved markets of Visayas and Mindanao.
During a summit organized by COL Financial Group Inc, SM Investments Corp senior vice president for investor relations Corazon Guidote said the conglomerate is pouring P80 billion to expand its property, retail and banking businesses.
Guidote told reporters that the property group will account for P70 billion of the parent’s capex budget, the retail group will receive P5-6 billion and the balance will go to the banking business.
The conglomerate’s 2014 capex program is higher than the previously announced record P65 billion spending for 2013.
SM is raising up to P15 billion in the second quarter with the issuance of fixed-rate peso retail bonds, including an oversubscription for another P5 billion in case of strong demand. The proceeds from the bond issuance will be used to refinance maturing debt and for various expansion projects.
SM investor relations officer Timothy Daniels said its food retail formats comprising of supermarkets, hypermarkets, Savemore and WalterMart have the option to put up branches in the CityMalls following the conglomerate’s acquisition last month of a 34 percent stake in CityMall Commercial Center Inc (CMCCI).
CMCCI will develop a hundred CityMalls to become the country’s largest network of branded community malls by 2020. They will be located mostly in the Visayas and Mindanao, which account for a fifth of SM’s food retail store count.
“The reason why we’re very attracted to CityMalls is because we know our limitations. We’re very Luzon-centric at this point,” Guidote said.
CityMalls’ planned expansion in the Visayas and Mindanao presents an opportunity for SM to introduce its neighborhood store format Savemore in those underpenetrated markets.
Guidote said SM president Harley Sy initiated talks for an investment in CityMalls and in acquiring a stake in CMCCI, “investing in the talent” of Edgar “Injap” Sia II, the man behind Mang Inasal.
Soon-to-be-listed DoubleDragon Properties Corp, which owns the remaining 66 percent and has management control of CMCC, is a 50-50 joint venture between Sia’s Injap Investments and Jollibee Foods Corp (JFC) founder Tony Tan Caktiong’s Honeystar Holdings Corp.
JFC acquired 70 percent of Mang Inasal in 2010 for P3 billion, with Sia retaining the remaining 30 percent.
“With the backing of Jollibee and SM, you can see that mall can be populated with a Savemore store, all the [brands] of Jollibee, a bank branch from our stable and other retailers we have a relationship with. We can populate this mall so we know it’s going to be successful. Because it’s small and a standalone format, we can roll this out to many locations,” Daniels said.
The country’s dominant retailer, Henry Sy-owned SM Group is facing stiff competition from Lucio Co-led Puregold Price Club Inc and Gokongwei-owned Robinsons Retail Holdings Inc, which have embarked on their respective expansion programs.
Even with a network of 193 food retail stores at end-December, SM sees more room for growth given that the Philippine retail market is at the “very early stage” of development, Daniels said.
“The organized retail sector is still being created. Rural expansion is the big opportunity and small formats have high potential,” he said.
“If you were to go to Mexico, Thailand, Indonesia and other countries which you can compare to the Philippines in terms of demographics, income levels and consumer needs, you will find one player has 10,000 outlets. The Philippines is significantly behind other countries in food retail so we think there are tremendous opportunities for growth,” Daniels added.