SEC okays EDC capital hike

MANILA, Philippines - Geothermal power firm Energy Development Corp. (EDC) has obtained the approval of the Securities and Exchange Commission (SEC) to raise its authorized capital stock from P15.075 billion to P30.15 billion by way of a stock dividend.

The stock dividend, involving 3.75 billion of its common shares, will be distributed to stockholders of record as of Oct. 2, payable on Nov. 23.

Additionally, EDC will raise up to P10 billion worth of fixed-rate bonds to refinance maturing debt and for general corporate purposes. The bonds will have a term of 5 1/2 years and seven years.

BDO Capital & Investment Corp. will be both the issue manager and bookrunner for the bond float.

The company’s proposed bond issuance was assigned a rating of PRS Aaa — the highest credit rating on domestic credit ratings agency PhilRatings’ scale. Obligations rated PRS Aaa are of the highest quality with minimal credit risk and indicates that the borrower’s capacity to meet its financial commitment on the obligation is extremely strong.

In assigning the rating, PhilRatings took into account EDC’s strong cash flow generation as well as ample liquidity and sources of financing to cover maturing debt and operating requirements; its reduced exposure to foreign currency risk with its projected change in debt mix; improving profitability; its strong position as the Philippines’ largest producer of geothermal energy; and its experienced management team.

The company’s funding requirements are substantial due to sizeable debt maturity in 2010, as well as given the initial $96 million payment to Power Sector Assets and Liabilities Management (PSALM) Corp. for the Tongonan I, Palinpinon I and Palinpinon II power plants.

EDC, however, has already started to put in place needed funding for its requirements as evidenced by the P9 billion fixed-rate corporate notes issued in the third quarter of 2009 and its planned bond issuance of up to P10 billion.

The company has about $300 million in maturing obligations until next year, which includes a P1.5-billion Miyazawa loan due in June 2010.

PhilRatings said while EDC’s net earnings declined to P1.3 billion, the drop was not due to a deterioration in operating performance but was the result of significant unrealized foreign exchange losses of P9.4 billion from the translation of its foreign currency-denominated loans.

EDC was affected by the appreciation of the yen against the dollar and the depreciation of the peso vis-à-vis the dollar as of Dec. 31, 2008. Around 79 percent of EDC’s loans were yen-denominated.

EDC, however, has started to recover in the first half this year, posting a net profit of P2.7 billion, mainly coming from long-term contracts with National Power Corp. and the addition of Tongonan I, Palinpinon I and Palinpinon II power plants, as well as by other renewable energy projects.

The Renewable Energy Act is expected to improve EDC’s projected bottom line, particularly with its provision of lower corporate income tax of 10 percent for power generated from renewable resources.      – Zinnia Dela Peña