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Subject of the Disclosure |
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The Comprehensive Corporate Disclosure is sent in several tranches due to the volume of attachments. This is the tenth tranche.
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Background/Description of the Disclosure |
The issuance of 6,185,182,288 shares of stock in the Company (the “Shares”) to AC Energy, Inc. (“ACEI”) out of the increase in the authorized capital stock of the Company to Php24.4 billion in exchange for property needed by the Company for corporate purposes consisting of shares of stock owned by ACEI in select subsidiaries and affiliates in the Philippines (the “Property”) as approved by the Board on 9 October 2019 (the “Transactions”).
After Board approval of the Transactions, the Company entered into a Deed of Assignment with ACEI dated 9 October 2019 covering the Shares to be issued to ACEI in exchange for the Property that will be transferred via a property-for-share swap (the “Share Swap”). The Property to be transferred to the Company consists shareholdings in select companies holding the on-shore power assets of ACEI. In exchange for the Shares valued at Php2.37 per share, ACEI has agreed to assign to the Company its shares in the following subsidiaries: AC Energy Development, Inc., Monte Solar Energy, Inc., Ingrid Power Holdings, Inc., South Luzon Thermal Energy Corporation, Philippine Wind Holdings, Inc., ACTA Power Corporation, Moorland Philippines Holdings, Inc., Manapla Sun Power Development Corp., Viage Corporation, and NorthWind Power Development Corporation (hereinafter collectively referred to as the “Target Companies”). |
Date of Approval by Board of Directors | Oct 9, 2019 |
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Date of Approval by Stockholders | Sep 17, 2019 |
Other Relevant Regulatory Agency, if applicable | - |
Date of Approval by Relevant Regulatory Agency | N/A |
Date of Approval by Securities and Exchange Commission, if applicable | TBA |
The nature and description of the proposed transaction, including the timetable for implementation, and related regulatory requirements if applicable |
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The Board approved the increase in the authorized capital stock of the Company to PHP24.4 billion on 23 July 2019 (the “ACS Increase”). The shareholders, constituting at least 2/3 of the outstanding capital stock, approved the ACS Increase on 17 September 2019.
The Board approved the Share Swap with, and the issuance of the Shares to, ACEI on 9 October 2019. The Share will be issued out of the ACS Increase. A copy of the Deed of Assignment between ACEI and the Company is attached as Annex “A”. The subscription by ACEI to the Share which will be paid through ACEI’s assignment of the Property to the Company via the Share Swap constitutes the initial subscription to the increase the Company’s authorized capital stock. The Share Swap will be implemented via a tax-free exchange, whereby ACEI will assign the Property for Shares in the Company, subject to a Fairness Opinion on the valuation of the Shares and the Target Companies, as well as the valuation of the Company, as prepared and issued by FTI Consulting Philippines, Inc. (“FTI Consulting”), an independent financial advisor accredited by both the Securities and Exchange Commission (“SEC”) and the Exchange. In exchange for the Shares valued at Php2.37 per share, ACEI will assign to the Company its shares in the Target Companies. A copy of the Fairness Opinion rendered by FTI Consulting is attached hereto as Annex “B” The issuance of the Shares in exchange for the Property is not subject to the pre-emptive rights of the shareholders, pursuant to the amendment to the Articles of Incorporation of the Company that was approved by shareholders owning at least 2/3 of the outstanding capital stock on 17 September 2019 providing that the pre-emptive right of shareholder does not apply to the issuance of shares of the Company in exchange for property to be used for corporate purposes for as long as such shares do not exceed 16 billion shares. The exchange of the Shares for the Property will qualify as a tax-free exchange under Section 40 (C) (2) of the Tax Code, as amended, which provides that: (2) Exception. - * * * No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation: Provided, That stocks issued for services shall not be considered as issued in return for property. Section 40 (C) (2) of the Tax Code, as amended, has been interpreted by the Supreme Court in the case of Commissioner of Internal Revenue vs. Filinvest Development Corporation (G.R. No. 167689, 9 July 2011), to mean that a tax-free exchange applies when the controlling person gains “further control” or transfers where the exchangor already has control of the corporation at the time of the exchange. The Company expects to file the application for increase in authorized capital stock with the SEC by end-October 2019. The Company is also scheduled to file with the Bureau of Internal Revenue an application for tax-free exchange ruling by end-October 2019. The shares are expected to be listed with the Exchange on or before 31 March 2020. Annex “C” of the attached letter provides the timetable of the Transaction. |
The reason/purpose of the transaction including the benefits which are expected to be accrued to the listed issuer as a result of the transaction |
The transfer of the Property to the Company implements ACEI’s plan to constitute the Company as its platform for growth and opportunity within the Philippines. The Property includes a pipeline of power projects that were carefully chosen based on each project’s capability to be constructed and operated in a sustainable and profitable manner. With these projects in its pipeline, the Company is better positioned to implement its growth strategy and to be more responsive to the rapidly growing power supply needs of the Philippines and to its commitment to sustainability.
The operating and development projects that will be transferred to the Company, the location and type of the projects, the size of the assets in megawatts and the attributable interest of ACEI in each of the assets is provided in Table 1 of the attached letter. The Property also includes the assets of the Bronzeoak group that ACEI acquired in March 2017, including the following: • Renewable energy development, management and operations platform. The platform developed the solar projects San Carlos Solar Energy Inc., Negros Island Solar Energy Inc. and Monte Solar Energy Inc. as well as the biopower projects San Carlos BioPower Inc., South Negros BioPower Inc. and North Negros BioPower Inc. until transfer of the management to Negros Island Biomass Holdings Inc. in September 2018. • Lease and leasehold rights to the renewable projects in San Carlos, La Carlota and Manapla Negros Occidental. • Bulk water business supplying untreated water to the biomass plants in San Carlos, La Carlota and Manapla Negros Occidental. As the Company grows its portfolio with the addition of the Property, the Company’s 500-person strong team with significant experience in development and operations targets to be the leader in renewable energy in the country and sets its goal to reach 2000MW by 2025. |
The aggregate value of the consideration, explaining how this is to be satisfied, including the terms of any arrangements for payment on a deferred basis |
The fair value of the Property was placed at Php14.66 billion, which is within the range of values prescribed by the independent third-party evaluator, FTI Consulting. The Shares were valued at Php2.37/share.
Subject to regulatory approvals, including the issuance of a favorable ruling from the BIR that the Transaction is a tax-free exchange under the Tax Code, as amended, and the approval by the SEC of the Company’s increase in authorized capital stock from which the Shares will be issued, the Transaction will close upon the listing of the Shares with the PSE, which is expected to occur on or before 31 March 2020. |
The basis upon which the consideration or the issue value was determined |
The Shares were be valued at Php2.37/share which is at 9% and 14% discount to the last 15 days and 30 days Volume Weighted Average Price (VWAP), respectively, at the PSE, from 1 October 2019.
The Property and the Shares were both valued by FTI Consulting, a third-party independent evaluator accredited by both the SEC and PSE, using generally accepted valuation methodologies under the International Valuation Standards. Please see the Fairness Opinion (Annex “B”) for the method used in the valuation. |
For cash considerations, the detailed work program of the application of proceeds, the corresponding timetable of disbursements and status of each project included in the work program. For debt retirement application, state which projects were financed by debt being retired, the project cost, amount of project financed by debt and financing sources for the remaining cost of the project |
The Company continues to carry out its principal business which is the generation of electricity and the sale thereof to distribution utilities, contestable customers, directly-connected industrial customers and the spot market. The Company, through its subsidiaries, continues to provide ancillary services to the National Grid Corporation of the Philippines (NGCP) as a dispatchable provider of reserve power.
The Company has a portfolio of operating renewable energy and thermal power plants. The output of these plants is either sold directly to distribution utilities and electric cooperatives or to contestable customers under the Retail Competition and Open Access (RCOA). Diesel-fired power plants are used by the Company to provide ancillary services to the grid. Output of renewable energy plants are injected to the grid and are compensated for by Feed-in Tariffs (FIT) or sold at spot market prices at the Wholesale Electricity Spot Market (WESM). Table 2 of the attached letter provides for the list of the current operating assets owned by the Company and its subsidiaries, the technology or fuel used, capacity, status and location of such assets. The Company’s power supply business also includes buying electricity from, and selling electricity to, the Wholesale Electricity Spot Market (WESM) to produce trading gains. This allows the Company to meet electricity requirements of contracted customers, not only from its diversified power generation portfolio, but also by making purchases from the WESM. Alternatively, the Company can also supply to the spot market any excess capacity that it has generated, through its power plants. Moving forward, the Company will focus on wholesale supply of electricity to distribution utilities and cooperatives, taking advantage of the opportunities provided by the new Competitive Selection Process (CSP) Rules implemented by the ERC. On 9 September 2019, the Company was declared to have submitted one of the best bids after the opening and evaluation of bids of Manila Electric Company (“Meralco”)’s 1200MW (net) competitive bidding for the supply of electricity. On 13 September 2019, the Company and Meralco executed a Power Supply Agreement (“PSA”) for the supply by the Company to Meralco a baseload supply of 200MW from 26 December 2019 until 25 December 2029. The PSA will be subject to the approval of the ERC. On 11 September 2019, the Company was also declared to have submitted one of the best bids after the opening and evaluation of bids of Meralco’s 500MW (net) competitive bidding for the supply of electricity. On 16 September 2019, the Company and Meralco executed a PSA for the supply by the Company to Meralco of 110MW (mi-merit) from 26 December 2019 until 25 December 2024. The PSA will be subject to the approval of the ERC. In addition, the Company plans to spend a significant amount to rehabilitate the older plants in order to increase their outputs to or close to their original design capacities. |
The listed company must present a statement of active business pursuits and objectives which details the steps undertaken and proposed to be undertaken by the Issuer in order to advance its business |
The Company continues to carry out its principal business which is the generation of electricity and the sale thereof to distribution utilities, contestable customers, directly-connected industrial customers and the spot market. The Company, through its subsidiaries, continues to provide ancillary services to the National Grid Corporation of the Philippines (NGCP) as a dispatchable provider of reserve power.
The Company has a portfolio of operating renewable energy and thermal power plants. The output of these plants is either sold directly to distribution utilities and electric cooperatives or to contestable customers under the Retail Competition and Open Access (RCOA). Diesel-fired power plants are used by the Company to provide ancillary services to the grid. Output of renewable energy plants are injected to the grid and are compensated for by Feed-in Tariffs (FIT) or sold at spot market prices at the Wholesale Electricity Spot Market (WESM). Table 2 of the attached letter provides for the list of the current operating assets owned by the Company and its subsidiaries, the technology or fuel used, capacity, status and location of such assets. The Company’s power supply business also includes buying electricity from, and selling electricity to, the Wholesale Electricity Spot Market (WESM) to produce trading gains. This allows the Company to meet electricity requirements of contracted customers, not only from its diversified power generation portfolio, but also by making purchases from the WESM. Alternatively, the Company can also supply to the spot market any excess capacity that it has generated, through its power plants. Moving forward, the Company will focus on wholesale supply of electricity to distribution utilities and cooperatives, taking advantage of the opportunities provided by the new Competitive Selection Process (CSP) Rules implemented by the ERC. On 9 September 2019, the Company was declared to have submitted one of the best bids after the opening and evaluation of bids of Manila Electric Company (“Meralco”)’s 1200MW (net) competitive bidding for the supply of electricity. On 13 September 2019, the Company and Meralco executed a Power Supply Agreement (“PSA”) for the supply by the Company to Meralco a baseload supply of 200MW from 26 December 2019 until 25 December 2029. The PSA will be subject to the approval of the ERC. On 11 September 2019, the Company was also declared to have submitted one of the best bids after the opening and evaluation of bids of Meralco’s 500MW (net) competitive bidding for the supply of electricity. On 16 September 2019, the Company and Meralco executed a PSA for the supply by the Company to Meralco of 110MW (mi-merit) from 26 December 2019 until 25 December 2024. The PSA will be subject to the approval of the ERC. In addition, the Company plans to spend a significant amount to rehabilitate the older plants in order to increase their outputs to or close to their original design capacities. |
From | Php8.4 billion divided into 8.4 billion shares |
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To | Php24.4 billion, divided into 24.4 billion shares |
From | There is no change in the nature of the business of the Company. |
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To | There is no change in the nature of the business of the Company. |
From | PHINMA Energy Corporation |
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To | AC Energy Philippines, Inc. |
Name | (Regular or Independent) | |
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N/A | N/A |
Name | Position/Designation | |
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N/A | N/A |
Principal Shareholders | Before | After | |||
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Number of shares | % | Number of shares | % | ||
AC Energy, Inc. | 4,990,260,640 | 66.34% | 11,175,442,928 | 81.53 |
Type of Security /Stock Symbol | Before | After | |
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Common Shares | 7,521,774,922 | 13,706,957,210 |
Type of Security /Stock Symbol | Before | After | |
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Common Shares | 7,521,774,922 | 13,706,957,210 |
Type of Security /Stock Symbol | Before | After | |
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Common Shares | 0 | 0 |
Type of Security /Stock Symbol | Before | After | |
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Common Shares | 4,889,774,922 | 13,706,957,210 |
Effect(s) on the public float, if any | Public float will decline |
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Effect(s) on foreign ownership level, if any | Foreign ownership level will decline |
Nature and business |
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ACEI is the energy platform of Ayala Corporation, one of the largest business groups in the Philippines and is one of the fastest growing energy companies with over $1 billion of invested and committed equity in renewable and thermal energy in the Philippines, Southeast Asia and Australia.
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Discussion of major projects and investments |
Please see below an enumeration of the Philippine and international projects of ACEI to date (operating and under construction):
Local Projects: a. Thermal i. GNPower Mariveles Coal Plant Ltd. Co. ii. GNPower Dinginin Ltd. Co. iii. GNPower Kauswagan Ltd. Co. iv. South Luzon Thermal Energy Corp. b. Renewable i. Monte Solar Energy, Inc. (Solar) ii. Northwind Power Development Corp. (Wind) iii. North Luzon Renewable Energy Corp (Wind) iv. Negros Island Solar Power, Inc. v. San Carlos Solar Power, Inc. International Projects: a. Indonesia i. Salak and Darajat Geothermal Plants (geothermal) ii. Sidrap Wind Farm (wind) b. Vietnam i. Ninh Thuan Solar farm (solar) ii. Khanh Hoa Solar farm (solar) iii. Dak Lak Solar farm (solar) |
Type of Security | Amount | Number of Shares | |
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Common Shares | 22,740,000,000.00 | 227,400,000 | |
Redeemable Common Shares | 10,000,000,000.00 | 100,000,000 |
Type of Security | Amount | Number of Shares | |
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Common Shares | 15,986,599,300 | 159,865,993 | |
Redeemable Common Shares | 8,388,121,600 | 83,881,216 |
Amount | 22,687,220,900 |
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Number of Shares | 226,872,209 |
Type of Security | Amount | Number of Shares | |
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Common Shares | 15,986,599,300 | 159,865,993 | |
Redeemable Common Shares | 8,388,121,600 | 83,881,216 |
Type of Security | Amount | Number of Shares | |
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Common Shares | 15,986,599,300 | 159,865,993 | |
Redeemable Common Shares | 8,388,121,600 | 83,881,216 |
Type of Security | Amount | |
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Common Shares | 100 | |
Redeemable Common Shares | 100 |
Name | Number of Shares | % Ownership | |
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Ayala Corporation | 8,388,121,600 | 100% |
The interest which the directors of the parties to the transaction have in the transaction |
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Aside from their ownership of shares in the Company and in ACEI, the directors of the parties do not have an interest in the Transactions.
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Statement as to the steps to be taken, if any, to safeguard the interests of the shareholders |
The consent of shareholders owning at least two-thirds of the total issued and outstanding shares of the Company was obtained for the increase in authorized capital stock at the last annual shareholders’ meeting. The consent of shareholders owning at least two-thirds of the total issued and outstanding shares of the Company was likewise obtained for the amendment of the Articles of Incorporation to provide for the non-applicability of the pre-emptive rights of shareholders to issuance of shares in exchange of property needed for corporate purposes for as long as such share do not exceed 16 billion.
Furthermore, a Fairness Opinion was obtained from FTI Consulting to establish the fairness of the valuations of the Property and the Shares which are the subject matters of the Share Swap. Moreover, the Transactions were reviewed and unanimously approved by the Related Party Transactions Committee, which is composed entirely of independent directors. Finally, the Company will conduct a Stock Rights Offer (“SRO”) for up to 2.27 billion shares, subject to applicable regulatory approvals, at an offer price to be determined using the range of Php2.25/share to Php2.37/share. ACEI, the majority shareholder, has informed the Company that: (a) it will not exercise its pre-emptive rights in the first round of the stock rights offer to enable the minority shareholders to recover from the partial dilution arising from the Share Swap, and (b) in the event there are any unsubscribed shares after the first round, ACEI will subscribe to its pro-rata share in these unsubscribed shares. |
Other Relevant Information |
Please see attached with annexes.
Should you have further questions, please contact our Atty. Dodjie D. Lagazo at (+632) 7-730-6313. |
Name | Alan Ascalon |
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Designation | Vice President/ Asst. Corporate Secretary |