First Generation Holdings will start bookbuilding today (Tuesday January 17) for the first Filipino initial public offering in 10 months. The deal has sparked hopes of a real return of primary market issuance from the country after a false start that brought just two deals in 2005.
First Gen, which is the largest Filipino-owned independent power producer and controlled by the Lopez family, plans to raise about US$200 million through the sale of mainly new shares to international and domestic investors.
The international offer is led by CLSA and UBS, while the domestic portion of the offer is arranged by ATR-Kim Eng Capital Partners and BDO Capital & Investment Corp.
The company is offering 344.93 million shares at a price of 51 to 62 pesos each with an 80-20 international-domestic split. There is also a 15% greenshoe.
Of the total, up to 219.93 million share, or 63.7%, are primary, while 125 million shares are being sold by existing shareholders First Philippine Holdings Corp, AIDEC FG Power Corp and Sumitomo.
Pricing is expected January 26 following a global roadshow, which kicked-off in Manila yesterday, with the trading debut scheduled for February 10.
The price will value the company at about 9 to 11 times projected 2006 earnings, according to market sources, which is in line with the average 10.4 times for its Southeast Asian comparables.
First Gen is being offered at a premium to its parent company FPHC, which trades at about 7.3 times last year's estimated earnings after rallying strongly ahead of the upcoming listing of its 88.4%-owned subsidiary.
Power distributor Manila Electric Co (Meralco), which is First Gen's main customer and 17.7%-owned by FPHC, is also listed in its own right, which means investors have plenty of alternatives if they want a piece of the Lopez family's power assets.
"It's a little bit too much slicing and dicing and when that happens investors will typically only buy the new vehicle if it is cheap," one market observer said. "If FPHC wasn't listed a P/E of about 10 times would be reasonable, but as it is, this could be a bit of challenge," he added.
In the first nine months 2005, First Gen posted a net income of $67 million and EBITDA of $166 million on $603 million of revenue, compared with $89 million net income and $229 million EBITDA on $662 million in revenue in 2004.
The company is marketing itself as a combination of mature annuity business with a stable cash-flow - underpinned by its contracts with Meralco that still have 20 years left to run and contributed almost all of First Gen's revenues in 2004 and the first half of 2005 - and a growth play that will benefit from increased power demand and acquisitions, sources familiar with the offer say.
For one, the company - given its scale and expertise - is widely expected to win some of National Power Corp's generating businesses as the privatisation gets under way, analysts say.
According to a preliminary listing prospectus, First Gen is also eyeing potential acquisitions of privately-owned generation facilities and several greenfield projects. Among the latter is the potential construction of a 550 MW gas-fired plant in a 60-40 joint venture with BG Energy Holdings at an estimated total project cost of about $400 million.
Separately, the Philippines has seen a compound annual growth rate of 4.5% in peak power demand to 8,525 MW in 2004 from 7,138 MW in 2000, which is above the CAGR of 4.2% in real GDP over the same period. The Philippine Department of Energy projects peak power demand to increase by a CAGR of 8.4% from 2004 to 2014.
First Gen is well placed to tap into this demand, analysts say, as its two main power plants - natural gas-fired Santa Rita and San Lorenzo - are only five and three years old, respectively, and among the most efficient in the country.
The company has a total installed capacity of 1,727 MW of which the Santa Rita plant accounts for 1,000 MW and San Lorenzo 500 MW. First Gen has a 60% economic interest in each of these plants, while a subsidiary of Britain's BG Group owning the rest.
First Gen also holds a 37.3% stake in the 225 MW Bauang plant and 100% of a small hydro-power plant bought from Napocor last year.
In February/March last year, Manila Water Co became the first Filipino company to offer an IPO with an international tranche since the Asian Financial crisis, raising $98.7 million with the help of UBS. This was followed within days by a mega-sized $530 million Macquarie-led IPO by SM Investments Corp.
However, the political crisis that developed in spring, including an impeachement complaint against President Gloria Macapagal-Arroyo, effectively sealed the pipeline again as international investors opted to take their money elesewhere.
With that crisis largely settled and with the implementation of an expanded value added tax law in early November, investor confidence has returned and the timing of First Gen's IPO - initially delayed from last year - now seems impeccable.
In the past two-and-a-half months, the Philippine Composite Index has risen 9.05% and the peso has strengthened 4.26% against the US dollar on expectations the government budget will be in somewhat better shape this year as a result of the new tax.
The sale of US$2.1 billion worth of bonds in the international market earlier this month also means that a large part of the government debt that is maturing this year has already been pre-funded.
"Because of the macro environment, investors are starting to look at the Philippines again and you are starting to see volumes improving in the stock market," one banker said. "Everything is aiming in the right direction and if they can continue with their constitutional reform and look after their debt…I'm sure we will see more primary issuance," one banker said.
Following the share sale, First Gen's public float will be 38.9% to 41.7%, depending on the final price. FPHC will hold 57.6% to 60.4% and Sumitomo about 0.7%. AIDEC will sell all its shares.
