Price, valuation seen key as SPNEC secures nod on IPO

By Keren Concepcion G. Valmonte, Reporter

INTEREST in firms with environmentally relevant initiatives will draw investors to the P2.7-billion initial public offering (IPO) of Solar Philippines Nueva Ecija Corp., (SPNEC) but its final price and valuation will be more closely watched, analysts said.

Both the Philippine Stock Exchange (PSE) and the Securities and Exchange Commission (SEC) have approved of the planned public offering, SPNEC said in an e-mailed statement on Friday.

Net proceeds from the IPO will be used by the renewable energy (RE) company to partly finance the first phase of its 500-megawatt (MW) solar project. Construction is expected to begin before the end of 2021.

“We thank the PSE and SEC for approving this IPO, which aims to give the public a new option to invest in RE and increase the RE capacity of the Philippines,” Solar Philippines Founder Leandro L. Leviste was quoted in the statement.

Analysts said the IPO might be attractive to investors, given the current interest in investing in firms that have strong ESG (environmental, social, and governance) businesses or initiatives.

“The Solar [Philippines] IPO would potentially create some market interest or excitement, being part of the renewable energy story theme, in view of the ESG compliance observed by some local and global investors in recent years,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message on Saturday.

Meanwhile, Diversified Securities, Inc. Equity Trader Aniceto K. Pangan noted that RE is now a “much-sought power source.”

“RE as a source of electrical power are a much-sought power source at these times due to the harmful effects of fossil or carbon related fuels in the environment,” Mr. Pangan said in a text message on Saturday.

“Aside from this, demand for power remains critical as seen even during [these] pandemic times and especially post-pandemic wherein strong economic growth will be [experienced],” he added.

Analysts said that the attractiveness of the offer will be dependent on the IPO’s final offer price and valuations.

“The markets would also look at the company’s fundamentals and valuations, relative to other renewable energy companies in the country as well as in other ASEAN or Asian countries,” Mr. Ricafort said.

The exchange said in a notice on Friday that it approved the listing of up to 8.12 billion common shares, inclusive of IPO shares, of SPNEC. The Leviste-led energy firm plans to offer up to 2.7 billion common shares to the public for as much as one peso per offer share.

According to its preliminary prospectus dated Nov. 12, the company may net up to P2.59 billion from the offer. It plans to use P1.003 billion of the net proceeds to fund the 50-MWdc (megawatt-direct current) “Phase 1A” construction and development of its 500-MW solar project.

SPNEC plans to spend around P200 million for the construction of an approximately 10-kilometer (km), 230-kilovolt (kV) transmission line, which will be used by the entire plant to service the full 500-MWp (megawatt-peak) target capacity.

The company said the line will traverse Cabanatuan City and Santa Rosa and Penaranda towns in Nueva Ecija.

“Phase 1A is expected to commence operations in 2022,” SPNEC said. “The company also intends to commence construction of the transmission lines in the last quarter of 2021, and complete it by the commercial operations date of Phase 1A in 2022.”

Meanwhile, P23 million has been earmarked for its lease expenses for fiscal year 2022 “over project lands and for leases on the right of way.”

SPNEC said it aims to start the operations of Phase 1A “sooner” so the company can use cash flows from the business to additionally finance the construction of Phase 1B and Phase 2 of the project.

“At this time, the total project cost for Phase 1 is P4.875 billion, approximately 25% of which will be funded via equity and the remaining 75% will be funded via debt,” SPNEC said.

“At this time, the total project cost of the company’s 500-MWdc solar PV (photovoltaic) power project is estimated to cost around P11.906 billion, inclusive of estimated financing and capitalization costs and value added taxes, but are exclusive of any IPO-related fees and expenses,” it added.

On the other hand, P33 million is earmarked for general corporate purposes.

The company said “any amount in excess of” P1.332 billion will be used to acquire land for future expansion of the project. SPNEC has yet to “identify and finalize the exact location” and it will also “finalize the agreements with various yet to be identified landowners subject to due diligence.”

“The project’s future expansion areas may be located outside the area blocked off under the existing SESC (solar energy service contract), in which case the Company will process the necessary amendment to ensure existing SESC will cover future expansion areas (as permitted under the rules of the Department of Energy, secure the relevant government permits or approvals therefore (as may be necessary)) and secure corporate approvals therefore,” SPNEC said.

The PSE said the “conduct of the IPO and the listing of the company’s shares is subject to its compliance with all of the post-approval conditions and requirements of the Exchange.”

It is said to be the first time that a firm has been given the green light to list under the Supplemental Listing and Disclosure Requirements for Renewable Energy (RE) Companies, which was approved by the PSE in 2011.

The rules are said to allow “development-stage project companies” to list at the local bourse. However, they are subjected to certain requirements such as having a valid and subsisting service contract awarded by the Department of Energy (DoE).

Solar Philippines incorporated SPNEC in 2016 and scored a DoE service contract for the project in 2017.

“I am pleased that the PSE can support a renewable energy company with its fund-raising requirements,” PSE President and Chief Executive Officer Ramon S. Monzon said in a separate e-mailed statement on Friday.

“The need for RE is more amplified now as more companies are turning to RE as part of their climate action program.

SPNEC aims to conduct its offer period from Dec. 1 to 7, while its listing on the main board of the local bourse is tentatively slated for Dec. 17. The company aims to list under ticker symbol “SPNEC.”

The company has assigned Abacus Capital and Investment Corp. to be the issue manager and leader underwriter of the offer, while Investment Capital Corp. of the Philippines was engaged as a participating underwriter.