Philippine First Gen Debuts Weak; May Fall Further
Monday, February 13, 2006
MANILA (Dow Jones)--Philippine power producer First Gen Corp. (FGEN.PH) debuted weakly on the Philippine Stock Exchange Friday, with analysts predicting further losses, as pricing concerns dogging the only buyer of the electricity it produces weighed on sentiment.
First Gen, a unit of First Philippine Holdings Corp. (FPH.PH), first traded at PHP46.50, lower than its initial public offering price of PHP47, and eventually closed at PHP45.50 despite buying support from UBS Investment Bank, one of the underwriters for the country's first IPO this year.
The offer price was already below the PHP51-PHP62 band set by the company before it embarked on a roadshow last month. But it stated at the time that traders welcomed the lower price, saying the size and price of the offering represented a more comfortable level for investors.
Analysts Friday said the stock's debut performance was disappointing.
Jose Vistan, research head at AB Capital Securities, said that if First Gen mimics the performance of the last two IPOs in the Philippines - Manila Water Co. (MWC.PH) and SM Investments Corp. (SM.PH) - it is bound to fall further.
"Like SM Investments and Manila Water, First Gen was offered without a discount" to comparative companies, said Vistan. "If it follows the performance of those recent IPOs, First Gen could fall around 18%."
Vistan said that IPOs, unlike secondary share offerings, have yet to show a "price pattern" that could be used as a guide for predicting future performance, hence the need for the IPO discount.
Manila Water debuted on Mar. 18 last year at PHP7.50, up from its IPO price of PHP6.50, but has fallen as low as PHP5.60 since its listing. It closed Friday at PHP6.20.
SM Investments, a holding company with diversified investments, debuted on Mar. 22 at PHP248, lower than its IPO price of PHP250. It has since oscillated between PHP200 and PHP260. It closed Friday at PHP220.
"It (First Gen's share fall) was a victim of market sentiment and stories hounding the Lopez Group of companies (which include First Gen), such as the challenges they face from the country's energy regulators," said Astro del Castillo, managing director at fund manager First Grade Holdings.
Despite the liberalization of the power industry, electricity pricing remains a politically-sensitive subject in the Philippines, where the majority of an 80 million population remain poor.
Manila Electric Co. (MERB.PH), or Meralco, the sole buyer of electricity from First Gen, has suffered several setbacks in its efforts to increase power rates.
Just last week, the Supreme Court voided a rate adjustment in 2002 that allowed Meralco to recover from consumers funds it used to pay for the cost of higher electricity.
Company Executives Still Upbeat; Expansion Planned
First Gen raised PHP9.78 billion from issuing 208 million shares, of which 80% went to foreign investors.
Around 15% of the total proceeds were kept by UBS Investment as a standby fund to stabilize the share price for 30 days after the listing. Any funds unspent after the stabilization period will be forwarded to First Gen.
Giles Puno, First Gen's chief finance officer, said this was put in place to provide stability and prevent the share price from falling too sharply.
"They're (UBS) acting as a safety net. The market should be allowed to determine the price. If they (UBS) are seen to support the price at PHP47 at any cost, it will be too predictable," he said.
But the poor debut didn't damp the spirits of the largest Filipino-controlled independent power producer's executives attending the listing of First Gen shares.
"This is just the opening bell," First Gen Vice Chairman and Chief Executive Peter Garrucho said during a press conference. "We believe that the strength of the company will shine through."
First Gen will use the proceeds from its share sale to fund future expansion projects. The company, which has a generation capacity of 1,726.6 megawatts - 11% of the Philippine power sector's installed capacity - plans to start building another 550 megawatt natural gas-fired power plant south of Manila next year.
The 550 megawatt San Gabriel power plant is intended to address a projected power shortage seen hitting the Philippines by 2010.
It also plans to bid for power plants that state utility National Power Corp. (NAP.YY) will privatize "Aside from Napocor, we are also looking at foreign (power generation) companies that may want to exit the Philippines," said company President Federico Lopez.
He said the company is ready to acquire stakes in any privately-held power plants that may be put on sale. A number of foreign groups have large investments in the Philippine power generation industry, among them Mirant Corp. (MIR) and Korea Power Electric Corp. (015760.SE).
However, Lopez did not elaborate on which companies First Gen may be looking at.
posted by philpower @ 9:35 AM,
