SPNEC shareholders approve massive swap plan
The shareholders of Solar Philippines NEC [SPNEC 1.99 6.13%] voted to approve the assets-for-shares swap with SPNEC’s parent company, which would see SPNEC issue 24.37 billion shares (valued at P2.50/each) to the parent in exchange for the parent’s shares in over 20 solar development companies, and the required increase in SPNEC’s authorized capital stock (from P1 billion to P5 billion) to facilitate the transaction.
The acquired companies will have a combined 163 MW of existing capacity in operation, plus 240 MW of potential capacity through various expansions (which SPNEC said it purchased at valuations of roughly P20 million per MW).
In its press release, SPNEC said that it expects to have over 1 GW of operational capacity by the end of 2023 between its original Nueva Ecija solar farm, its “rooftop portfolio”, and the operating capacity of these projects.
Importantly, however, SPNEC explicitly distanced itself from the idea of itself as being primarily a solar farm operator; the company said that it is a “project developer and not an [independent power producer[“, and that SPNEC’s actual competitive advantage is in its ability to assemble asset-rich pieces of land and package those together with all of the permits and other administrative requirements needed to get projects “shovel-ready”.
SPNEC also said that it would look to raise “at least P10 billion” through a Q2 stock rights offering (SRO), plus a “possible” private placement and follow-on offering.
MB BOTTOM-LINE
The shareholder approvals are just an uncontroversial (but necessary) step in the implementation process of this plan, as will be the SEC approval for the authorized capital stock (ACS) increase which will be required before moving forward.
SEC approvals will be needed for the ACS increase, and also the Q2 SRO, but those will also probably be rather uncontroversial.
I think the biggest thing to come out of this release is the rough valuation metric that Leandro Leviste is using to value the projects transferred from his private holding company to SPNEC, which is the “P20 million per MW” thing.
Applied to the projected pipeline’s full realization of its 14,395 MW of potential capacity, that would produce a theoretical value of P288 billion for SPNEC’s pipeline, dwarfing the ~P17 billion marketcap of SPNEC right now.
Right from the start, we’d be well advised to note that we should not necessarily take project valuations passed between organizations with the same owner at face value; clearly, the per-MW valuation would be more reliable if it were derived from dealings with unrelated third parties.
Adding to that, it’s important to recognize that the SPNEC pipeline’s 14.4 GW of potential capacity is just that: potential capacity.
As SPNEC freely notes, it views the risk to its valuation as one of execution: can SPNEC actually deliver on the projects in its portfolio?
The next layer in the analysis is in the actual deals that SPNEC will cut with its partners to develop the solar farms in the portfolio.
What percentage of the project value will SPNEC investors get as a result of these deals with Prime Infra, AC Energy [ACEN 8.06 0.86%], and Aboitiz Power [AP 34.10 0.44%], among others? All that said, the potential value of these projects is absolutely massive.
Many multiples of its current marketcap or even its post swap market cap.
We are in the early days of properly valuing what SPNEC is attempting to do here, and while no two deals are ever exactly the same, we should be able to start making reasonable extrapolations on what SPNEC investors should expect from each partnership based on the details from some of the deals that are being worked on right now.
All eyes are on this space, and for good reason.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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