SP New Energy Corp [SPNEC 1.59 3.3%] [link] put out a press release yesterday to say that it is “committed to complete its Stock Rights Offering”, by advertising that its parent company, Solar Philippines Power Project Holdings (SPPPH), “has offered” to buy any leftover SRO shares as a means of “assurance” to SPNEC investors.
Readers will remember that SPNEC needed to conduct this SRO to conduct the assets-for-share swap with SPPPH; without the SRO, the swap would dilute SPNEC shareholders to the point where public ownership would fall below the PSE’s minimum threshold.
Back in September, the SRO allowed buyers to either pay in full, or to avail of a payment plan. Of the 1.875 billion shares on offer, around 1.12 billion were purchased using the “pay in full” option, and 0.75 billion shares were purchased using the payment plan.
As of December, only 23% of the payment plan buyers had completed their purchase, with around 0.58 billion shares still unpaid. SPNEC moved the deadline for payment from 5 December 2022 to 5 March 2023 to give those people more time to pay.
Will they sell all the shares? Maybe. SPNEC said that it “believes” that the unpaid shares will be fully paid, “based on indications of interest”. The uptick in SPNEC’s price makes the SRO shares more attractive, but SPNEC didn’t provide an update on any progress since before Christmas. I don’t know what that says.
Isn’t the commitment/assurance good? Sure, but it’s nothing new. SPPPH is contractually obligated to purchase any of the shares that don’t get taken up in the first two rounds of the SRO. This is part of the new rule scheme that the PSE adopted after the failed DITO CME [DITO 3.27 1.5%] SRO caused so much chaos and loss of face. They’re basically making a show of promising to do what they already have to do. And based on how many posts I saw on social media talking about how this is a good sign for SPNEC, I’d say that framing had the desired effect.
What happens if the SRO fails? That would mean that SPPPH would need to step in and buy the leftover shares. Operationally, SPNEC would still get the full benefit of the equity raise from the SRO, since cash is still cash whether it comes from a retail investor or a parent company. Administratively, it would put SPNEC even further behind in its race to maintain its minimum public float, since any of the shares that SPPPH would be forced to buy would not count as part of the public float.
Is that bad for SPNEC? Yes, but it’s not a critical hit. The SRO is only for 1.875 billion shares, so even if it was wildly successful and 100% of those shares were sold to the public, SPNEC would still need to sell another 0.25 billion shares to the public in some other fashion to get the share swap done without being suspended. SPNEC even ended the disclosure talking about its efforts to land additional private placement deals to facilitate the share swap. So even if the SRO failed, it would just increase the number of shares that SPNEC would have to sell through private placement, which it was in the process of doing anyway.
What should payment plan investors do? Whatever they want! But failure to complete the transaction means that they’ll lose the 25% down payment that they made on the shares and get nothing in return. Strategically, though, doesn’t it seem like it’s in the buyer’s best interest to wait as long as possible to make full payment? It’s an SRO, so the shares don’t disappear so long as full payment is made in accordance with SPNEC’s rules within the time period. Maybe wait and see if the price keeps above the P1.50/share SRO price point. If it does, you win! Complete the SRO and bask in your discounted shares. If it falls, you win! Well, you don’t lose as much. But that’s a relative win. Just don’t be lazy, or too cute with your timing, and miss the payment deadline. Do your research!
MB BOTTOM-LINE
I get that there’s a lot of hype and excitement about SPNEC, but my interest here is just to be eyes wide open about what is actually happening.
I know this is going to come across as negative, but that’s sometimes unavoidable when we’re talking about the intersection of marketing (which this disclosure was) and legal obligations.
Put another way, SPNEC’s disclosure was like if I called BPI and said to my loans officer, “Rest assured, I am committed to paying my mortgage on-time, and in the proper amount.” Her response would probably be some corporate version of “Cool story, bro; that’s what you promised to do anyway.”
That’s basically what we got here. No new information from December, except a reminder that SPNEC’s price went up and that SPPPH is committed to buying any shares which don’t get purchased by the public, which it was going to be doing anyway.
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