BIZ BUZZ: Lopez overbid for Casecnan?
A group of stock market investors has raised concerns over what they believe to be a shockingly high price paid by Lopez family-led First Gen Corp. (through unit Fresh River Lakes Corp.) for the 165-megawatt Casecnan Hydroelectric Power Plant in Pantabangan, Nueva Ecija.
“Fiasco” was how they described the bid for the privatized asset, explaining the math behind why they believe this is a Pyrrhic victory.
Fresh River bagged the project with its $526-million bid—230 percent more than the floor price. Meanwhile, Aboitiz Power offered just a 13-percent premium over the floor price, while EEI’s was 31 percent higher.
The investors sent to the board of ultimate parent conglomerate Lopez Holdings a strongly worded letter calling for an internal investigation of whether proper due diligence had been undertaken by the latter’s management during this bid.
“Unless management of First Gen Corp. is able to justify its bid price for Casecnan on both economic and strategic grounds, shareholders are constrained to assume that there was a complete lack of oversight in evaluating and approving the project,” said the letter dated Sept. 11. “Board members of First Gen Corp. have abandoned their duty of stewardship.”
The investors claimed that the tenet of capital budgeting had been ignored, with First Gen’s cost of capital of 6.8 percent overshooting the 5.8-percent projected yield of Casecnan.
“Its exorbitant bid price for the project will erode shareholder value and consequently negatively impact its parent holding company First Philippine Holdings, and ultimately Lopez Holdings Corp.,” the letter said.
The investors lamented that from a high of P34.05 a share in 2021, shares of First Gen have already lost 42 percent of their value and are now trading at just 0.48 times book value and 3.2 times earnings per share while peer Aboitiz Power is trading at much higher multiples of 1.4x price to book and 3.2x price to earnings.
“Why is the board not policing the actions of management or holding them accountable for making value-destroying decisions?” they asked.
First Gen rejoinder
Dennis Gonzales, senior vice president and head of First Gen’s hydro group, said the group’s participation in state biddings was motivated by three primary objectives.
The first is to acquire strategic assets that build on its renewable and low-carbon energy assets.
“Casecnan is truly one such prime asset. It is undeniably linked to the Pantabangan-Masiway hydropower facility in Nueva Ecija, which we likewise decisively won in a bidding much like this one, also carried out by the Power Sector Assets and Liabilities Management Corp. (PSALM) in 2006,” Gonzales said in a note sent to Biz Buzz.
He said Casecnan and Pantabangan-Masiway are two “truly valuable” multipurpose facilities that contribute to the country’s energy security. Both also provide much-needed irrigation to farmlands in Central and Northern Luzon, and are thus vital to food security. Both likewise perform critical flood control functions, he noted. “Both are not only visionary, but will also be difficult, if not impossible to replicate,” he said.
Gonzales said the group would also like to give the government a “fair and equitable return. This is the first major privatization of PSALM under President Marcos and he said First Gen felt “privileged to have been part of the success of this effort.”
The third objective is to manage public assets acquired for purposes that are “regenerative.”
“We are firm in our belief that we are ultimately but stewards of everything that we own and hold. Consistent with this, we are deliberate in operating our geothermal and hydrological resources with a regenerative mindset that will not only improve and optimize their generating capacities, but also strengthen and enrich the communities and biodiverse ecosystems in which these are all embedded,” he said.
He said this acquisition of Casecnan “was made after a thorough evaluation of the relevant factors and we are confident in its ability to deliver reliable services to the public and an acceptable return to investors. Casecnan can realize unique synergies with nearby Pantabangan, which can deliver significant value to shareholders and the public in general.”
On questions about overvaluation, he argued, “On a dollar per megawatt basis, our bid was lower than the cost of building a new plant from scratch and comparable to previous bids for similar assets on a dollar per megawatt hour basis.”
Solaire wins big
The usually stern countenance of ports and gaming tycoon Enrique Razon Jr. must have softened into a smile last week after Solaire Resort Entertainment City won big during the IAG Academy Awards, bringing home the titles of Best Regional Asia-Pacific Integrated Resort, Outstanding CEO and Best Gaming Floor, cementing its position as a leader in the competitive gaming and hospitality sectors.
The Hall of Honor Outstanding CEO award was deemed a nod to the visionary leadership of Razon, who has been steering the course of the $1.2-billion complex from the beginning, through challenges such as the COVID-19 pandemic toward robust growth and continuing innovation.
The Best Gaming Floor accolade, meanwhile, was a recognition of Solaire’s vibrant gaming environment that caters to both seasoned and novice players, the number of which has been growing with the COVID-19 pandemic becoming a distant memory.
The highlight of the glittering ceremony last week, however, was the conferment on Solaire of the Best Regional Asia-Pacific IR award, which Solaire said was “a validation of the exceptional quality of facilities and services that Solaire – the first resort to open in the government-sponsored Entertainment City economic development zone – has to offer, setting a benchmark in the region for luxury, entertainment, and hospitality.
Speaking on the wins, Thomas Arasi, president and COO, said, “These accolades reflect the collective efforts of the passionate and dedicated team at Solaire. Our unwavering commitment to excellence and our continuous pursuit to redefine luxury and entertainment in the region have brought us here. I dedicate these awards to every member of the Solaire family who works tirelessly to create magical and memorable experiences for our patrons.”
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