Deal with Sys to make Citicore IPO attractive, say analysts

MANILA, Philippines — The landmark P5-billion share sale deal between tycoon Edgar Saavedra’s Citicore Renewable Energy Corp. (CREC) and Sy family-led SM Investments Corp. could help attract more investors for the former’s upcoming initial public offering (IPO) and beef up its solar power portfolio with fresh capital, according to analysts.

Juan Paolo Colet, managing director at investment bank China Bank Capital Corp., said in a text message on Wednesday that the deal gave CREC time to wait for “better market conditions” prior to its P12.9-billion IPO, which was delayed to the second quarter.

“There’s now less pressure to raise equity since they got P5 billion from SM. At the same time, the fresh cash puts CREC in a better position to execute their project pipeline, which could potentially make their IPO more attractive,” Colet said.

This comes after SM Investments bought 1.884 million, or 29 percent, of CREC’s shares in real estate investment trust Citicore Energy REIT Corp. (CREIT) to move the SM Group’s sustainability agenda forward.

READ: Citicore raises P5B from share sale to SM Investments

In its disclosure to the Philippine Stock Exchange on Wednesday, SM Investments said the shares were priced at P2.6534 each.

Trade suspension

Trading of CREIT shares was suspended on Wednesday prior to the share sale announcement. Its share price ended at P2.79 each on Tuesday, giving it a market capitalization of P18.26 billion.

CREC, which is part of the Megawide Group, clarified it would remain the single largest shareholder in CREIT with a 32.88-percent stake after the transaction.

Proceeds from the share sale would go to the development of CREC’s pipeline of 1,583 megawatts of solar power projects in eight locations across the country.

“We believe that the SM Group’s entry and investment into CREIT and the partnership with CREC unlocks potential synergies, given the energy requirements of the SM Group,” CREC president and CEO Oliver Tan said in their disclosure.

CREIT is the first renewable energy REIT landlord to list on the local bourse. It is also considered the largest REIT, with approximately 7.1 million square meters of gross leasable area.

These are mostly solar farms leased to REIT sponsor CREC.CREC earlier delayed its IPO to the second quarter, saying it was “carefully evaluating offers from various institutions.” It was originally scheduled to go public this month.

On the part of the SM Group, the deal would allow it to finally gain ground in the renewable energy sector, according to COL Financial Group chief equity strategist April Lynn Tan.

Mostly solar farms

“The benefit of owning CREIT is that it is already operational, rather than having to build from scratch. It also generates reasonable cash flow,“ Tan said.

READ: Stock market debutant allots P35B for solar capital outlays

The country’s largest blue chip conglomerate would also soon list a REIT to be formed by property arm SM Prime Holdings Inc.

SM Investments president Frederic DyBuncio noted that sustainability was a “continued priority” for the company, which is currently engaged in banking, retailing and property development.

“That’s why we continue to invest more in sustainable emerging sectors that positively impact the economy, and the renewable energy sector is one of them,” he said.