BY ALBERT CASTRO

San Miguel Corp. yesterday priced its preferred shares to be swapped for common shares at P75, with a yield of 8 percent or P0.40 per annum.

The P75 issue price carried a 25 percent premium over yesterday’s closing price of P60 for both "A" and "B" common shares.

San Miguel created the new class of preferred shares, called Series 1 preferred shares, to ease stockholders’ concern over the diversification of San Miguel from mainly food and beverage manufacturing to power and oil refining.

The Series 1 shares are designed to be attractive to conservative stockholders who have been used to San Miguel’s long-held dividend policy. Stockholders who are less averse to risk taking are expected to continue holding on to common shares in expectation of capital appreciation on top of continued dividend payouts.

The preferred shares are perpetual, cumulative and non-voting. They carry a par value of P5 and will not be listed with the Philippine Stock Exchange. The swap carries a ratio of 1:1 for all interest shareholders of the company.

San Miguel A shares yesterday were up P4 from Friday’s P56 and B shares were up P3.50 from P56.50.

The P.40 yearly dividend on the Series 1 shares is computed on the basis of an 8 percent return on its P5 par value.

San Miguel in earlier disclosures said that the company management will have the sole discretion when to declare dividends on the preferred shares. Unless redeemed, the dividend rate will be adjusted at the end of the fifth year to the higher of a) the original 8 percent dividend or b) the prevailing 10-year PDSTF rate plus a spread of up to 300 basis points.

San Miguel has the option to redeem all or part of the shares on the third year after issue date or on any dividend payment date afterwards "at a redemption price equal to the issue price plus all cumulated and unpaid cash dividends."

Citibank and ATR Kim Eng serve as the share swap advisers for the offer.

The company said the Series 1 preferred shares are its "proactive approach to engage with existing shareholders who may seek to assume a different risk profile in light of the current global financial crisis."

Analysts said the decision to swap is hard to call.

Given the company’s history of good dividend payment, holding on the common shares remains a good choice, they said.

This year, San Miguel issued a total of P.70 per share cash dividend to all common share stockholders.

"The question is even despite the diversification, will San Miguel continue with its historical payout? If it can still do so, holding on to the common shares is a good option," said Accord Capital Equities Inc. trader Jun Calaycay.

"Their entry into new businesses really carry a risk since it is out of their core competencies. There is a big learning curve that they have to hurdle," he said.