Private equity funds offer to acquire a third of EDC

By Krista Angela M. Montealegre
National Correspondent

A CONSORTIUM of private equity funds is offering to acquire nearly a third of Energy Development Corp. (EDC) that will use the capital to settle debt and support future growth, at the same time setting the stage for the delisting of its shares from the bourse.

In a briefing in Makati City on Thursday, First Gen Corp. Chairman Frederico R. Lopez announced that the company’s wholly owned subsidiaries Red Vulcan Holdings Corp. and Northern Terracotta Power Corp. (NTPC) entered into an implementation agreement with Philippines Renewable Energy Holdings Corp. (PREHC), which is buying up to 31.7% of the country’s largest renewable energy company for P64.5 billion.

The P7.25-per-share offer price represents a 22.3% premium to EDC’s last 30-day volume weighted average market price of P5.93, parent First Gen said in a press release yesterday. The offer to EDC shareholders will run from 9 a.m. on Aug. 10 to 12 noon on Sept. 18.

PREHC is owned by a consortium of investors with funds managed by Macquarie Infrastructure and Real Assets (MIRA), the world’s largest infrastructure asset manager, and Arran Investment Pte. Ltd., which is an affiliate of Singaporean sovereign wealth fund GIC.

Together, they have a portfolio of 11.5 gigawatts of renewable energy assets globally.

“Bringing in an experienced and credible partner to work with us makes a lot of strategic sense and we look forward to forming a partnership with Macquarie and GIC which will benefit EDC as it intends to grow our energy platform,” First Gen President and Chief Operating Officer Francis Giles B. Puno said.

“The consortia partners MIRA and GIC are committed, long-term, patient investors. We look forward to a fruitful partnership,” said David Luboff, senior managing director of MIRA.

First Gen has agreed to tender 10.6% of its total outstanding shares in EDC, subject to scale-back provisions under applicable regulations.

Proceeds from the share sale amounting to P14 billion will be used to reduce debt and support growth initiatives, Mr. Lopez said.

Post transaction, First Gen will retain a 40% economic and 60% voting control in EDC through its stake in Red Vulcan.

First Gen will also maintain day-to-day management control of EDC’s operations.

PREHC and First Gen have a “firm intention” to eventually delist EDC from the Philippine Stock Exchange, citing a plan to reinvest a greater proportion of earnings in the business and increase leverage to optimize capital structure and fund future growth, according to a disclosure.

While EDC’s public float will go down to 12.5% from 49.28% at end-June, it still falls above the required 10% minimum public ownership (MPO) requirement of the local bourse, Mr. Puno said.

However, with the Securities and Exchange Commission (SEC) keen on hiking the MPO requirement to 15% by the end of 2018 and 20% by the end of 2020, the key shareholders have “no proposals to increase the company’s public float after the tender,” First Gen said.

“We’ll cross the bridge when we get there,” Mr. Puno said.

PREHC is acquiring through the tender offer a minimum of 6.6 billion common shares up to a maximum of 8.9 billion common shares of EDC. The tender shares represent 23.5%-31.7% of the listed company’s total outstanding voting shares.

GOOD PRICE
“I think First Gen got a good price,” Luis A. Limlingan, business development head at Regina Capital Development Corp., said in a telephone interview, referring to the tender offer price’s 22.3% premium.

“Maybe there’s something that PREHC sees that we don’t,” he added.

“The next question is who will replace EDC in the PSE index since it will be delisted.”

EDC forms part of the 30-company bellwether index.

Mr. Lopez said the tender offer provides First Gen with an opportunity to realize part of its investment in EDC. The former, through Red Vulcan, won the bid to acquire the latter from state-owned Philippine National Oil Co. and the PNOC EDC Retirement Fund in 2007.

First Gen is the country’s leading independent power producer that utilizes primarily “clean”, indigenous fuels like natural gas, geothermal energy from steam, hydroelectric, wind and solar power. The company has 3,477 megawatts of installed capacity in its portfolio.

First Gen and EDC shares were on a one-day voluntary trading suspension to give investors time to digest information on the transaction. Trading of the shares resume today.