Salcon Power to buy back P200M of its shares at PSE

With excess cash from the proceeds of its initial public offering (IPO) plus retained earnings, energy firm Salcon Power Corp. (SPC) plans to buyback P200-million worth of its own shares at the stock market.

SPC corporate secretary Alfredo Ballesteros said the company’s board had reviewed the company’s cash position and had authorized the share buyback "in order to optimize the use of company funds and, at the same time, enhance the value of the company shares held by shareholders of the company."

"The company has sufficient retained earnings to cover the buyback transaction," Ballesteros added.

SPC also has about P232 million from its IPO of primary shares last April 2, originally intended to partially fund a P1.4-billion power project in eight major islands in the country.

But a decision by the National Power Corp. (Napocor) to cancel the project contract with SPC, citing constraints on bilaterally-negotiated power purchase agreements under the Electric Power Industry Reform Act of 2001, has left SPC with no recourse but to re-channel the IPO proceeds toward other projects.

Although SPC said it continues to meet and discuss with Napocor to resolve the issue and determine other options, it has, in the meantime, invested the proceeds in short-term fixed income securities with certain banks.

Ballesteros said the company expects its cash position up to end-December this year to be highly liquid due to the substantial amount of cash from operations and from reimbursements of deductions made by Napocor from fees due the company.

The buyback will involve approximately 10 percent of SPC’s outstanding shares, reducing its public exposure from the post-IPO level of 20 percent to 10 percent.

Several companies (including San Miguel, La Tondeña, ABS-CBN, Alaska Milk, Jollibee Foods, RFM Corp. and Aboitiz Equity Ventures) have resorted to share buyback programs to take advantage of the lower price valuation, boost their respective market prices and tighten their corporate control by expanding shareholdings.

The Securities and Exchange Commission (SEC), however, is planning to put a cap on these buyback schemes by lifting the suspension of the required free float, which means companies should allocate between 10 to 30 percent of a company’s total shares for the public.

The Philippine Stock Exchange suspended the free float in 1997 upon the request of some companies who wanted to buyback as much shares as they could from the market to boost their prices and drive up liquidity at the bourse, as the country fell victim to the regional financial crisis.