Corro-Coat acquires biodiesel firm in share-for-share swap

Corro-Coat Inc. is acquiring 100 percent of sister company Chemrez Inc. through a share-for-share swap valued at P582.41 million, in line with its diversification into the renewable fuels business.

With the acquisition of Chemrez, Corro-Coat is now engaged in the manufacture of resins and oleochemicals in addition to its traditional powder coating business.

The deal involves the issuance by Corro-Coat of 462.23 million new common shares in exchange for 252.7 million shares of Chemrez. The exchange ratio was determined on the net book value of Chemrez based on its unaudited financial statements as of March 31, 2006 and the last traded stock price of Corro-Coat which was P1.26.

Chemrez owns a P650-million continuous process methy ester plant which has annual capacity of 60 million liters of biodiesel which can be produced from vegetable feedstock such as coconut oil. The plant, located in Libis, Quezon City, is expected to be operational this week.

Chemrez currently operates a 15,000-metric ton per year oleochemical batch plant where it has been producing methyl esters for the detergents and soaps industries since the early 1980s. It registered sales of at least P2 billion in the last two years.

It sells its biodiesel under the BioActiv brand which has found acceptance in several countries such as Germany, Japan and China.

Upon completion of the purchase, Corro-Coat will be renamed Chemrez Technologies Inc.

Corro-Coat chief financial officer Francis Caluag said the company is planning to sell new shares to the public to raise additional capital mainly for the purchase of the biodiesel plant.

Caluag said the company hopes to raise more than P650 million from the offering scheduled in the latter part of the third quarter to early in the fourth quarter of 2006. Tapped as financial advisers for the offering are Asian Alliance Investment Corp. and BancPros Inc.

Corro-Coat director Dean Lao said the company is looking at Europe as its key potential export market in order to take advantage of the expected huge demand for biodiesel in the next five years.

The new vehicle market in Europe is fast shifting away from gasoline to diesel-engine types as the European Union has committed to reduce carbon dioxide emissions by eight percent between 2008 and 2012 and to require its member-states to use biodiesel in all vehicles starting with an indicative two percent in 2005 to 5.27 percent by 2010.

"This opens up the market for Southeast Asian biodiesel producers using feedstock such as palm oil (Malaysia/Indonesia) and coconut oil (Philipines)," Lao said.

Even in the absence of mandatory biodiesel use, biodiesel sales in Europe has grown from 1.2 million metric tons in 2001 to 1.9 million metric tons in 2004. Experts estimate that European biodiesel consumption would grow to five million metric tons in 2007, 6.5 million metric tons by 2008, and further to 10 million metric tons by 2010.

Lao said the annual domestic market for biodiesel is expected to reach about 70 million liters, assuming mandatory use at one percent pre-blending with mineral diesel under the proposed BioFuels Act.

While one percent is the initially required pre-blending level under the proposed law, Corro-Coat intends to undertake the promotion of higher usage of biodiesel for better mileage and emission benefits for vehicular and industrial consumers.