P50-B ‘premium’ in Lopez-Razon hydropower deal questioned

MANILA, Philippines – The majority bloc of the Lopez family alleged that Federico “Piki” Lopez had agreed to pay Prime Infrastructure Capital Inc. a P50-billion transaction premium in a hydropower venture, calling it a “horrible deal”.

In a statement on Tuesday, the Lopez majority said it recently discovered from board documents that the original transaction had involved a P50-billion premium on top of P25 billion in construction equity. These formed the P75-billion consideration for First Gen’s acquisition of a 40-percent stake in Prime Infra’s hydropower business.

READ: Piki seeks ‘lasting’ Lopez peace

The transaction has been a flashpoint in the bitter dispute between the Lopez majority and Piki Lopez, who remains president and CEO of First Gen despite his removal earlier this year as president and CEO of Lopez Inc., the family’s holding company.

The majority group said the alleged premium had not been disclosed to investors when First Gen announced the transaction. Instead, the company had said that P62.5 billion would be used to directly fund the construction and equity requirements of the hydropower projects.

The hydro deal was announced months after Prime Infra had acquired a 60-percent stake in First Gen’s gas business for P50 billion.

In return, First Gen agreed to buy a stake in Prime Infra’s hydropower platform, which includes the 600-megawatt (MW) Wawa pumped-storage project in Rizal and the 1,400-MW Pakil pumped-storage project in Laguna.

According to the Lopez majority, the economics of the transaction became even more unfavorable after First Gen’s stake had been reduced from 40 percent to 33 percent, lowering the transaction value from P75 billion to about P61.9 billion.

The group claimed the reduction effectively left Prime Infra with 67 percent ownership while requiring only about P625 million in additional equity to complete the projects, which are still under development and are not expected to generate cash flows for several years.

“In effect, Piki funded the whole project that is yet to be built, has no cash flow for years, and faces multiple completion risks,” the Lopez majority said. “This is a horrible deal for First Gen.”

The family bloc also argued that the stake reduction had stripped First Gen of strategic minority veto rights and handed Prime Infra full control of the hydropower company.

It questioned whether a premium had been paid for that control and called on regulators to require fuller disclosure of the transaction.

READ: Lopez majority flags third ‘poison pill’ tied to Piki removal

The latest accusation adds to a series of criticisms by the Lopez majority over the First Gen-Prime Infra transactions.

The group earlier questioned change-of-management provisions tied to the deals, claiming these could expose First Gen and other Lopez-affiliated companies to substantial financial risks. INQ