APC to undergo restructuring

Holding firm APC Group Inc.—long speculated to be the SM group’s future vehicle for energy assets—has approved a corporate restructuring program designed to wipe out the company’s P7.73-billion capital deficit.

In a disclosure to the Philippine Stock Exchange, APC said it had approved an amendment to the company’s by-laws to reduce the par value of common and preferred shares from P1 to one centavo.

This is much more aggressive than the reduction in par value contemplated in the past, which was meant to fast-track the elimination of its capital deficit.

In the disclosure, APC said “the reduction in par value will generate sufficient additional paid-in capital to wipe out the company’s capital deficit.”

APC is 46.59-percent owned by leisure estate and gaming firm Belle Corp., which is majority owned by the SM group.

By cleaning up the balance sheet, APC will be ready to accept new businesses. Pundits have long speculated that APC would be used for the consolidation of the SM group’s energy assets, particularly its interest in Philippine Geothermal Production Co.

SM first invested in geothermal energy in 2012 with the purchase of a 60-percent stake in Philippine Geothermal Production Co. In December 2016, Chevron sold its geothermal assets in the Philippines and Indonesia to a consortium that includes the Ayala group. Recently, the Ayala group sold its 99-percent interest in ACEHI-STAR Holdings Inc., the special purchase company that acquired Chevron’s local geothermal assets last December, to SM group’s AllFirst Equity Holdings Inc.

On its own, APC owns Aragorn Power, which is still in pre-operating stage. In 2008, Aragorn Power was granted a geothermal service contract (GSC) by the Department of Energy (DOE) for a site in Kalinga province. The GSC was converted into a geothermal renewable energy service contract (GRESC) in 2010 so the project could avail itself of the incentives provided under the Renewable Energy Act of 2008.

As of March 31, 2017, the consent of nine out of 11 ancestral domains has been secured covering 85 percent of the geothermal service contract area.

In November 2010, Aragorn Power and partner Guidance Management Corp. (GMC) formed a partnership with Chevron Kalinga Ltd., a wholly-owned subsidiary of Chevron Geothermal Philippines Holdings Inc., for the development of the geothermal area. The parties signed a farm-out agreement that gave Aragorn Power and GMC the option to take an equity position of up to 40 percent in the geothermal project. The parties also signed a joint operating agreement.

Under the agreement, Chevron will be responsible for the exploration, development and operation of the steam field and power activities. The effectivity of the two agreements hinges on the approval by the government of the application for a Financial and Technical Assistance Agreement (FTAA).