Sources privy to the transaction said ZNBC, owned by a leading local sugar conglomerate and a group of petroleum, shipping and investment banking veterans, will own about 12 percent of Basic upon completion of the deal.
ZNBC, owner of a 9,000-hectare sugar cane farm in Zamboanga Del Norte, plans to put up a fully integrated ethanol plant capable of manufacturing 200,000 liters of ethanol per day. The project is estimated to cost P2.8 billion.
Basic’s acquisition of ZNBC is in line with efforts to take advantage of the anticipated strong demand for bio-diesel as the country shifts to more indigenous fuels in response to the uncertainty of the world’s energy supply.
The Biofuels Bill, which becomes effective 90 days from Jan. 15, 2007, mandates a minimum one-percent biodiesel blend into all diesel engine fuels and a minimum five-percent bioethanol blend into all gasoline fuel distributed and sold in the country. The mandated blend will increase to two percent for biodiesel and to 10 percent for bioethanol two years and four years, respectively, after the effectivity of the act.
Ethanol is an alternative energy resource produced from crops such as sugar, corn, grain sorghum, wheat and other agricultural feed stocks. It can be used as a transportation fuel, as a blend to gasoline, a component of reformulated gasoline, or a primary fuel with gasoline as blend.
Sources privy to the transaction said the move is in line with efforts to boost the company’s cashflow and improve shareholder value.
Basic closed 5.7 percent higher last Friday at P0.56.
Basic chair Oscar De Venecia said ZNBC will remain as the general manager of the bioethanol project together with strategic partners from India and Thailand who will provide technical and equity support.
De Venecia said Basic will raise its capital to six billion shares from two billion shares to facilitate the additional issuance of shares to the public in July or August this year. The company hopes to raise between P1 billion and P1.5 billion from the follow-on offering.
Camba, Reyes & Partners Inc. has been appointed as financial adviser while BDO Capital & Investment Corp. will serve as the lead underwriter for the follow-on offering.
De Venecia said ZNBC, headed by Jose R. Reyes Jr., is now in the final stages of negotiations with various institutional investors, both local and foreign, for private placements to fund the proposed project.
ZNBC is also seeking a P1.6-billion syndicated long-term debt to be arranged by the Development Bank of the Philippines and BDO Capital.
Aside from this, ZNBC is in talks with local oil companies for "off-take" contracts of its future bio ethanol production which shall be available by September or October 2009.
Apart from the bioethanol business, Basic (formerly Basic Consolidated Inc.) is also looking at venturing into coal exploration and/or gold mining to further rebuild its business portfolio.
Basic recently implemented a quasi-reorganization to wipe out the accumulated deficit and in turn attract direct investments for both its oil and non-oil projects. The corporate restructuring involved the decrease its authorized capital stock to P500 million from P2 billion and the reduction of the par value of its shares from P1 to P0.25 per share.
The company has oil concession areas in Mindoro, and some in Palawan and the Sandakan Basin (Sulu Sea).
Basic sold its Basic Petroleum and Minerals Inc. to Forum Energy Plc. For $17 million, more than enough to cover its deficit of P694.129 million.
Basic owns Basic Diversified Holdings Inc.; iBasic Inc. and Basic International Inc. It holds 57.34 percent of the outstanding shares of Southwest Resources Inc.