that is why under surveillance na yung risk management ng BDO
First Generation Holdings Corporation (FGEN)
Worst case scenario -> roll over the 1-year loans due november. Problem is it might be at higher interest rates. What is going for FGEN is the tremendous decline in natural gas prices, which will bring down significantly their operating costs.
BIZ BUZZ
Credit crunch, Lopez style Philippine Daily Inquirer First Posted 04:19:00 10/15/2008 Apart from Philippine American Life and General Insurance Corp. (Philamlife), the other hot story at last week’s Global CEO Conference of the Management Association of the Philippines—albeit one shared only in whispers—was the growing worry over the Lopez group’s financial condition. The group’s publicly listed geothermal power producer, First Gen Corp., needs to refinance $700 million worth of short-term loans, with $400 million coming due next month. The funds were used when First Gen bought the controlling stock in Energy Development Corp. (EDC) from the government’s Philippine National Oil Co. for P58.5 billion last November. Pro-Lopez groups have been going around trying to reassure jittery bankers that 70 percent of the funding has already been raised and that they’re in the process of sealing the balance. But the credit crunch leaves many listeners raising their eyebrows as to whether they’re telling the truth or merely bluffing.... http://business.inquirer.net/money/feat ... opez-style Truth or Dare?
Step 1 for the regularization of FGEN's debt situation activated:
http://www.pse.org.ph/html/disclosure/p ... 4_FGEN.pdf Step 2 is in the works: http://business.inquirer.net/money/tops ... ncing-deal
Actually the $700 million was already launched into international loan syndication market a few days ago...the question is if anyone will participate?
In the article, BDO said the deal is fully underwritten, but from what I read, its on a best effort basis...therefore kung best efforts, yari na to. 
First Gen, in Debt Talks, Sells One Unit to Another (Update2)
2008-10-16 04:20:44.940 GMT (Adds analyst's comment in third paragraph.) By Ian C. Sayson and Francisco Alcuaz Jr. Oct. 16 (Bloomberg) -- First Gen Corp., the Philippine power generation company that needs to pay about $400 million next month, raised $105 million by selling one of its units to a subsidiary. First Gen sold 60 percent of First Gen Hydro Power Corp., which owns a 112-megawatt hydroelectric complex, to geothermal producer Energy Development Corp., the company said in a statement to the stock exchange. ``They have no choice,'' said Laura Dy Liacco, an analyst at ATR-Kim Eng Securities Inc. in Manila. ``At least they're able to raise some funds but there are still some bumps ahead.'' First Gen shares have fallen 75 percent this year, the fifth-worst performer of 32 stocks in the benchmark index, as the global credit crunch raised concern it won't be able to pay its debts. Parent First Philippine Holdings Corp. has dropped 79 percent, the worst performer on the index. First Gen fell 3.2 percent to 15.25 pesos and First Philippine declined 7.7 percent to 15 pesos at 11:19 a.m. in Manila. `Nice Asset' First Gen borrowed the funds to pay the government 58.5 billion pesos ($1.2 billion) for Energy Development, the nation's biggest geothermal producer, which it won in an auction in November. First Gen Hydro owns the 112-megawatt Pantabangan-Masiway hydroelectric complex, which it bought from the government for $129 million in 2006. Selling it to Energy Development allows First Gen ``to keep a nice asset,'' Dy Liacco said. ``They really have to rely on their operating units because First Gen is just an operating company with a lot of debts.'' First Gen is in talks to sell 40 percent of the vehicle through which it owns Energy Development, First Philippine President Elpidio Ibanez said last week. First Gen has a loan of $300 million due next year. Separately, First Gen is ``close'' to an agreement with its lenders to refinance the debt due next month, Eduardo Francisco, president of BDO Capital & Investment Corp. said in a phone interview. First Gen is in talks with its local lenders, led by BDO, and its overseas lenders, Francisco said. The Philippine Daily Inquirer reported Francisco's comments earlier today.
Transferring assets from one company to another like this, without third party due diligence or bidding, smack of very poor corporate governance! What does EDC, a geothermal company, know about running a hydroelectric plant?!
I guess desperate times call for desperate measures....
Deutsche:
First Gen Corp {Ticker: FGEN.PS, Closing Price: 15.75 PHP, Target Price: 45.00 PHP, Recommendation: Buy} *Selling 60% for US$105m First Gen (FGEN.PS, P15.75, Buy) announced today that it is selling a 60% stake in hydro operation Pantabangan-Masiway to subsidiary Energy Development Corp (EDC.PS, P3.50, Hold). The transaction price is US$105m, equating to US$175m for 100% equity. The deal is expected to close within the year. *Valuation is reasonable The sale to EDC is bound to raise some concerns about related party dealing, especially since FGEN is facing some stress because of its refinancing issues. Nevertheless, we believe the US$175m price tag is reasonable even if FGEN acquired the 112MW hydro for only US$129 (100%, enterprise value) only two years ago. *EV/MW of US$2m, EV/EBITDA and PER of 6x We estimate the valuation represents a PER (on core recurring earnings) of 6x. If we throw in the debt (approximately US$66m, excluding cash), the enterprise value could rise to as high as US$241m. This represent a 20% discount to our own US$300m valuation for this hydro and an EV/EBITDA of 5.7x. Relative to capacity, this deal translates to a maximum US$2.2m/MW. While this may be higher than the latest hydro transaction -- Aboitiz Power (AP.PS, P4.10, Buy) acquired the 175MW Ambuklao-Binga for US$1.86m/MW -- it's worth pointing out that Ambuklao-Binga needs much more rehabilitation work. *Positive but not out of the woods FGEN, we reckon, will report a pretax gain of ~US$60m from the sale. More importantly, this deal is the first step in resolving FGEN's fund-raising needs (which includes the re-levering of its 1000MW Sta Rita facility and sale of a 40% stake in Red Vulcan). FGEN needs to raise as much as US$800m between now and May 2009. Of the US$800m, as much as US$500m (minimum of US$430m) falls due in the next few weeks.
BDO was doing some buying today, so maybe they know something about how the underwriting is coming along...
it was in the papers yesterday that BDO already raised $150M for FGEN. The remainder is still being worked out with different global banks and expected to be finalized by end of the month, must wait and see. November is fast approaching, but I bet FGEN could pull it off and refinance its maturities. update on red vulcan anyone?
keep your trades safe!
EDC's entry into hydro power cost them $105 million for majority stake in one prized asset of FGEN. In my calculation, FGEN netted a gain on sale on asset (equitized) of roughly 16.5% per annum (for two years). That is not a bad quick-flip transaction if I should say so myself. This is amidst the financial crisis that the entire world is grappling with. Good job, FGEN, on such a timely sale so that its debt loan can be partially paid off.
For EDC, its acquisition of 60% stake in the hydro power plant would yield them around 8% per annum. This is probably a win-win transaction for both parties involved as long as Pantabangan Masiway's growth is not impeded. One should note though, that EDC's current cost of debt is at double-digits, implying a negative carry for the near term. FGEN's consideration for the sale would be to receive preferred dividends for 5 years, with a potential upside for earn-out amounting to just below P1.5 billion.
EDC was once a PURE steam field producer before, but they managed to run a power plant after the turnover of power plants in Leyte. EDC, AS A GEOTHERMAL COMPANY, has an ongoing wind project in Burgos, Ilocos Norte. EDC, AS A GEOTHERMAL COMPANY, had green field hydroelectric projects before privatization. Why do they can't run a hydroelectric plant? Besides, running a hydroelectric plant is much easier than geothermal plant. Besides again, hydro experts and plant operators of Fgen will not leave the plant after the transfer.
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