Meralco [MER 374.00, down 0.3%; 56% avgVol] [link] disclosed that its subsidiary, MGen Renewable Energy (MGEN), agreed to pay P15.9 billion to SP New Energy [SPNEC suspended] to subscribe to 15.7 billion common shares and 19.4 billion redeemable preferred voting shares in SPNEC. The primary shares in SPNEC will come from an increase in SPNEC’s authorized capital stock (ACS), which will see SPNEC raise its ACS from 50 billion common shares to 75 billion common shares and 25 billion preferred shares. Once the deal is closed, MGEN will become the controlling shareholder of SPNEC with a total voting interest of 50.5%.
> What is next for SPNEC? The company disclosed that will conduct a Special Stockholders' Meeting on December 4 to approve the increase in ACS required to facilitate the sale of a controlling stake to MGEN, and to approve that sale specifically. SPNEC also said that it would conduct a follow-on offering (FOO) to “support the expansion of the Company’s project portfolio” and to “increase the public ownership of its shares”.
> How much did MGEN pay per SPNEC share? MGEN paid P1.00/share to acquire 15,894,000,000 common shares. This is less than the P1.25/share that SPNEC charged to Metro Pacific (MPI delisted) to buy 1.6 billion common shares back in March. It’s also way less than the P2.25/share that SPNEC charged Solar Philippines Power Project Holdings (SPPPH) in the asset-for-shares swap that drove SPNEC’s public float down to 13.82% and got it suspended on June 2.
> What will be the public float after this sale? I’m not actually totally sure. SPNEC has been suspended for so long that I’ve forgotten a lot of the complicated story that came before. If the public float was 13.82% on 34.3 billion outstanding shares, then the sale of 15.7 billion new shares to a controlling entity would push SPNEC’s public float down to 10.48%.
> How does SPNEC lift the suspension? SPNEC was suspended back on June 2 for dipping below the PSE’s 20% minimum public ownership (MPO) rule threshold. SPNEC has six months from that date to raise its public float up above 20%, or face being “automatically delisted from the Official Registry of the Exchange”. So if SPNEC’s public float is 10.48% after the MGEN transaction, this would mean that SPNEC would need to sell 4.35 billion shares through its FOO to get enough shares out into public hands to raise its float above the MPO.
> What if it doesn’t raise its float? This is where the fun starts. Technically, the PSE’s rules say that SPNEC “shall” be automatically delisted if it remains non-compliant with the MPO rule at the expiration of the 6-month suspension period, which ends on December 2, 2023.
> But isn’t the meeting scheduled for December 4? Yes.
> Doesn’t SPNEC need to do the FOO before December 2? As far as I can tell, yes.
> What are the other options? With SPNEC’s public float so low post-transaction, it wouldn’t cost a great deal of money for MGEN, or a consortium of Metro Pacific-owned units, to conduct a tender offer to voluntarily delist SPNEC. But, I’m still not sure how that ties in with the automatic delisting that would theoretically occur a few days before the SPNEC shareholders meet to even approve the MGEN transaction.
> So what happens now? Nothing. SPNEC is still suspended, and as usual, shareholders will just have to wait for disclosures to gain clarity on what is happening with their investment in this company.
MB bottom-line: I’m low on sleep and I haven’t thought about SPNEC substantively in quite a long time, so I’m very self-conscious about my interpretation of the situation. It feels nonsensical for SPNEC to schedule the Special Stockholders’ Meeting for a date that is two or three days after it technically “shall” be involuntarily suspended. Even if the Special Stockholders’ Meeting was a couple of days prior to the expiration of its 6-month grace period suspension, it still takes time to conduct a FOO and get those shares into the hands of the public. Even the quickest FOO would probably take a few weeks to do. What a weird and chaotic situation for SPNEC’s shareholders to endure. I’m a big believer in over-communicating in times of crisis, so I take it as a red flag that SPNEC has been so quiet with shareholders over the course of this suspension period. Considering SPNEC’s entire life has basically been an evolving crisis, and considering the company’s penchant for dropping massive disclosure bomb pivots in top-level strategy with no warning, it seems like that red flag has always been flying.
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