Rising stars in the market

Last week’s market was disappointing as the perceived saves on Thursday and Friday still failed to bring the benchmark Philippine Stock Exchange index (PSEi) back to positive territory. Yet, it still proved instructive as it afforded active hunters a glimpse of sectors and stocks that could lead the way for the market in the long term.

The first of these market stars, so to speak, seemed to have made its presence felt last Friday. This was no other than the Energy Development Corporation (trading symbol: EDC).

EDC ranked first on the list of the most actively traded 20 stocks that day. It had a total volume of 156.34 million shares with a total value turnover of P1.094 billion, which could be its biggest on record.

Based on 2016 market data, EDC had a total of 882.32 million shares traded on a total value turnover of P17.91 billion. This meant EDC shares only had an average monthly trading transaction of 73.53 million shares on a total value turnover of P 1.49 billion, or a daily transaction volume of 3.68 million shares on a total value turnover of P74.5 million.

Last Friday, EDC accounted for no less than 17.20 percent of total market transactions.

The activity on EDC was apparently triggered by the announcement of First Gen Corporation (FGEN) the previous day that a consortium of investors was interested in acquiring up to 31 percent of the geothermal firm’s common shares.

As subsequently disclosed, the interested party was the Philippines Renewable Energy Holdings Corp. (PREHC). PREHC was reportedly interested in purchasing 6.6 billion to 8.9 billion common shares, equivalent to about 23.5 percent to 31.7 percent of EDC’s total outstanding shares.

Based on the bid price of P7.25 apiece, PREHC appeared ready to “pay a premium of 21.8 percent over the last closing price of P5.95 per share,” or a 22.25-percent premium over the last 30 days.

PREHC will acquire the shares through a tender offer that will begin on Aug. 10 at 9 a.m. and end on Sept. 18 at noon.

First Gen and its wholly-owned subsidiary, Northern Terracotta Power Corporation, will sell up to 1.99 billion shares or about 10.6 percent of their combined 50.6-percent stake in EDC. This will enable First Gen to realize about $280 million (P14 billion) that it can use to help reduce its financial obligations.

After the sale, First Gen will still be able to keep a 40-percent economic interest and 60-percent voting control in EDC.

PREHC is indirectly held by a consortium of investors led by Macquarie Infrastructure and Real Assets (MIRA) and Arran Investment Pte. Ltd. (ARAN), an affiliate of Singapore’s state wealth fund GIC Private Ltd. (GIC).

Bottom line spin

EDC is engaged in the production of geothermal energy. It “holds service contracts (SCs) in four of its 14 geothermal service contract areas namely, Tongonan, Kananga, Leyte; Southern Negros, Valencia, Negros Oriental; Bacon-Manito, Albay and Sorsogon; and Mt. Apo, Kidapawan, Cotabato.”

EDC also “holds 11 wind energy SCs covering areas in Ilocos Norte, Sorsogon, Iloilo, and Negros Occidental; and six solar energy SCs covering areas in Ilocos Norte, Negros Occidental, North Cotabato, and Cebu.” It also operates a hydroelectric power plant through its 60 percent-owned subsidiary, First Gen Hydro Power Corporation.

The buy-in is seen as a welcome development.

The investors have been described as “knowledgeable and successful.”

MIRA, among others, is “the world’s largest infrastructure asset manager with more than 20 years of experience.” It is known to “have a 6.5-gigawatt (GW) direct investment in renewable energy.”

GIC, on the other hand, is a leading global investment firm with “a strong track record of infrastructure investments in the emerging markets, and has a direct portfolio of over 5 GW in renewable energy assets globally; notable among these is GIC’s investment in Greenko, a market leading renewable energy independent power producer in India with over 2 GW of installed capacity.”