GEM commits P1.38-billion equity infusion in MRC Allied

MANILA, Philippines - Global Emerging Markets Global Yield Fund Ltd. (GEM) has committed to infuse up to P1.38 billion in new equity in publicly-listed MRC Allied Industries over the next three years.

MRC Allied said yesterday it has executed an equity line of credit agreement with GEM last Monday.

Founded in 1991, GEM is a $3.4-billion investment group, having completed 285 transactions in 60 countries. The firm is an alternative investment group that manages a diverse set of investment vehicles across the world.

GEM’s funds include CITIC/GEM Fund, VC Bank/GEM Mena Fund, Kinderhook, GEM Global Yield Fund, GEM India and Banco Pine/GEM Funds.

The programmed cash infusion follows an earlier announcement that MRC Allied will be transformed into a power generation firm. This change in primary business will be sealed by the entry of Lucio Tan Jr., the son and namesake of the airline and tobacco tycoon, who earlier disclosed plans to add a P3.5-billion power plant into MRC Allied’s asset inventory.

Company officials revealed that the power plant, either a fully operational bunker fuel or a clean coal-fired plant with a 200-megawatt capacity, will be acquired by MRC Allied before June this year.

“I want to be able to show a profit this year. The Philippines is not in recession so the demand for power is growing. If there is an asset infusion, I want it to generate profits from Day 1,” MRC chairman Benjamin Bitanga earlier disclosed.

Based on his target, Bitanga said MRC Allied may begin recognizing earnings from the power generation facility by the second quarter.

He said the company is eyeing “semipublic” facilities that provide energy to the Luzon grid and generate an estimated $40 million (P2 billion) per year in sales. He declined to name the power plants being considered.

The firm is already in talks with two foreign entities for possible management contracts, he added

The deal will likely see Tan Jr. entering MRC Allied as a majority shareholder while the fund manager will be a “passive” strategic investor, noted Bitanga. He added that the P1.4 billion in new funds may be used to acquire another power plant, or to invest in “related industries” to complement its power generation businesses.

The recent moves are seen to further unlock the value of MRC Allied, which has posted consecutive losses over the past few years.

In the third quarter of 2009, MRC Allied reduced its losses to P4.33 million from P34.85 million in the same period a year. The firm suffered a P144.07-million net loss in 2008.

The group of Bitanga and Tan had previous business dealings. In 1996, Bitanga sold MacroAsia Corp. (formerly Infanta Mineral and Industrial Corp.) to Tan Jr.

MacroAsia is now a holding firm with interests in aircraft services, mining and property development. Originally incorporated in 1990 as Makilala Rubber Corp., MRC Allied went into the development of master-planned, integrated residential, commercial, recreational, tourism and industrial areas.