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ON Dec. 13, 2006, the state-owned PNOC Energy
Development Corp. (PNOC EDC) sold its shares for the public for the
first time. EDC is the world’s largest geothermal company.
It generated P19.2 billion from the initial public offering (IPO) at
P3.20 per share for 20 percent of the world’s leading geothermal
producer.
The P3.20 share price was grossly
underpriced. On the first trading day, investors easily earned 42
percent as the shares closed at P4.60 per share, thanks to CLSA
Exchange Capital, the financial advisor and global coordinator hired
by PNOC EDC President Paul Aquino.
In July 2007, PNOC EDC made a
follow-on offering, for 20 percent of the company. It raised P17
billion and PNOC EDC was no longer a government firm. The IPO price
was higher this time, P5.70 per share.
In November 2007, the remaining
60 percent was auctioned—40 percent in common shares and 20
percent in preferred shares.
EDC was acquired by the Lopez
family’s Red Vulcan Holdings Corp. for a whopping P58.5 billion.
EDC had become 100 percent private from 100 percent government three
years ago.
Why would the Lopezes, the family
that invented large-scale power ownership and management in the
Philippines, value a company three times it was worth after 11
months and eight days?
The first answer is that the
P3.20 per share IPO price was, it now turns out, really an anomaly.
PNOC EDC was wrongly priced in December 2006.
The second answer is that PNOC
EDC is a good company. It is literally steaming with potential.
The largest geothermal energy producer in the world, it supplies
steam to 12 operating power plants with total generating capacity of
1,199 megawatts (MW). Future projects will add 300 MW more in
capacity.
EDC has hot geothermal
properties. It has good management, especially the engineering team
(including 750 geothermalists with combined 11,000 man years of
experience). An archipelago of volcanoes, the Philippines is the
world’s second largest geothermal producer, with 1,978 MW of
installed capacity. The US is first, with 2,544 MW.
The company’s worth has been
highlighted with oil soaring past $111 per barrel and by the global
focus on green fuel like geothermal.
Finally, the team that auctioned
the controlling 60 percent of PNOC EDC last November did a really
good job, packaging the equity, drawing up the ground rules,
adopting complete transparency, and thus triggering unprecedented
investor interest.
That team was composed of PNOC
President Antonio Cailao, president and CEO of PNOC, PNOC EDC’s
mother company; veteran treasury expert Reynaldo G. David, president
and CEO of the state-owned Development Bank of the Philippines;
Manuel Salak III, managing director of ING, and topnotch lawyer
Perry Pe, a partner in the Romulo Law Offices.
David’s DBP committed to
provide what he calls “staple financing” or half of the
financing needed by the winning bidder. “Where can you find a
bidding where the bidders are given the financial wherewithal, the
financial lubrication, the ammo for their bids,” gushed PNOC CEO
Cailao.
The staple financing, David
explained, “is that it would come in just in case the foreign
partners of the winning bidder opted out.”
Rey also secured, quickly, the
required approvals from government to sweeten the offer. This
included continuance of government guarantees on PNOC EDC’s
sovereign loans, the Monetary Board exemption from the single
borrower’s limit on loans extended by the financiers, and the
Department of Justice and the Securities and Exchange Commission
opinions that a 60 percent Filipino consortium could be considered
100 percent Filipino as far as the bidding was concerned.
At the time of the bidding, Pe
noted, EDC was already about 30 percent foreign, leaving just 10
percent remaining to be owned by foreigners since utilities like
energy must be at least 60 percent Filipino.
Salak packaged the deal to
interested bidders. His ING has an enviable track record, having
handled or played the leading role in the $98 million IPO of Meralco
in 1992, the $400 million IPO of Petron in 1994, the sale of
government’s 32.5 percent equity in PNB for $145 million in 2005,
and the $336 million EDC IPO in 2006. It counts
Aboitiz,Marubenim,Banpu of China, Siemens, and Mirant among its
energy clients.
Lawyer Pe made sure that “the
rules crafted were all transparent and of international standard.”
With the terms made appealing,
the bidding naturally attracted what Cailao calls “the crème de
la crème” of the energy business, 15 groups, later reduced to
five, then four final bidders. The interested parties were amazed at
the groundwork done by the privatization team. Two of them,
Reykjavik Energy and Geysir, told the group: “You think like Bobby
Fisher, 30 steps ahead.” Which means the team was a genius in
their work.
Rey David’s heart sank when the
first bid was opened, P33.2 billion by AP Renewables of the Aboitiz
Group. PANASIA Energy of San Miguel quoted P39 billion. Then Andrew
Gotianun submitted P48.5 billion. The privatization team’s hopes
were buoyed. Then Red Vulcan’s bid was opened—P8.5 billion!
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