First Gen eyes P7 billion from perpetual preferred shares issue in second half

MANILA, Philippines -  First Gen Corp., the power generation arm of the Lopez Group, is planning to raise P7 billion worth of perpetual preferred shares in the second half of the year.

First Gen chief financial officer and treasurer Emmanuel Singson said proceeds from the share issuance will be used to retire maturing obligations in the near term.

“We will use it to further pay down maturing debts,” he said.

On the other hand, First Gen president Francis Giles Puno said the company is also readying to settle P5 billion worth of debts for 2012 and $130 million in 2013.

“In our minds we need to reduce our debts in favor of equity,” he added.

The company took advantage of a highly liquid market by raising P15 billion in fresh equity through a rights offering in January 2010.

The offering was practically fully taken up by existing investors - a validation of investors’ renewed confidence in First Gen and by signing three new loans namely: P3.75 billion five-year loan from Banco de Oro, $142 million syndicated term loan of six and seven years from a consortium of local and foreign commercial banks, and $100 million six- and seven-year notes facility also from BDO.

These transactions generated savings on interest costs by prepaying costlier debt and extinguishing short-term debt.

The company’s consolidated interest-bearing debt level decreased 11 percent from $1.13 billion in 2009 to $1 billion in 2010.

Funds from the rights offer were used to fully pay the P5 billion five-year bond that matured in July 2010 and buy back $754 million of convertible bonds in anticipation of a put option date in February 2011.

In addition, Red Vulcan Holdings Corp., an affiliate that directly owns 40 percent common shares and 100 percent preferred shares of Energy Development Corp. (EDC), likewise benefited from lower interest expense by reducing debt by 40 percent or P5.5 billion, from P13.8 billion to P8.3 billion, while Prime Terracota Holdings Corp., the entity that owns Red Vulcan, fully paid its debt of P2.5 billion.

Moreso, FG Hydro, the owner and operator of the Pantabangan-Masiway hydro plants, successfully raised a P5-billion 10-year term loan from Philippine National Bank and Allied Banking Corp.

In June 2010, EDC, one of the subsidiaries of First Gen, also signed a $175-million loan with a consortium of foreign banks to augment its working capital.

Also in 2010, EDC fully paid its Miyazawa II Japanese yen loans and its loans from Philippine National Oil Co. (PNOC), which were outstanding legacy loan obligations from the time it was still government-owned.

In January 2011, EDC completed a 10-year $300-million bond offering.

First Gen reported a higher attributable net income of $70.2 million for 2010, up by 319 percent from the $16.7 million it posted in 2009.

The consolidated net income in 2010 increased 27 percent to $121 million, compared with the net income of $95 million in the previous year. The improvements were driven by the solid performance of its portfolio and deleveraging program.