10 investor-groups submit bids to buy Mirant assets
Monday, September 04, 2006
By MYRNA M. VELASCO
Atlanta-based Mirant Corporation, with its sale advisor Credit Suisse, will draw up a shortlist of at least four prospective buyers of its Philippine assets by September 12 this year, from the indicative bids submitted by 8 to 10 investor-groups last August 31.
It was learned from a source privy to the evaluation process of the submitted tenders that it is "a tight race among Asian companies" since American and European investors have most backed out from furthering their respective interests.
The newly-formed partnerships that submitted indicative bids include the consortium of Japan’s biggest electric utility Tokyo Electric Power Company (TEPCO) and Marubeni Corporation with the Lopez-controlled First Gen Corporation as their local partner, which reportedly put up one of the tenders "worth watching for." First Gen took the spot in the tie-up when Aboitiz Equity Ventures backed out from pursuing its bid.
The others which submitted tenders are Korea Electric Power Corporation (KEPCO); One Energy Ltd. which is a joint venture between China Light & Power and Mitsubishi Corporation; and other Japanese firms which also aligned their respective synergies with interested bidders.
In an interview with reporters, Kepco Philippines Corporation president Gil Gu Lee hinted that they have been in talks with Asian and European investors for potential tie-up — and these are reportedly Japanese firm Chubu Electric Power Co. Inc., European firm Tractebel/Suez and Korea Export-Import Bank. The Korean power firm’s priority at this point though is to get into the shortlist.
A major concern thrived though whether the price tenders would be able to satiate the expectation of Mirant’s shareholders. The interested parties reportedly factored in risk premiums relating to pending issues of the company, including tax obligations, employees compensation and the tight spot with Philippine government on the consent issue.
It was gathered that American investor groups Intergen (of AIG and Ontario Pension Plan) and Berkshire Hathaway Inc. of billionaire Warren Buffet no longer advanced their bids in Mirant Philippines’ equity shares acquisition race. Reports have it that Buffet preferred to make unsolicited offer, but Mirant thought of cornering higher proceeds if done in a competitive bidding.
In Kepco’s case, the issues and concerns that needed to be addressed in Mirant’s sale process are now being evaluated by their legal team, and Lee averred that "with or without the consortium, Kepco can still bid for Mirant’s assets" counting both on the company’s cash hoard and technical expertise as its edge over rivals.
With the raging issues confronting Mirant’s equity divestments though, the interested parties apparently proffered that the US firm take heed of these issues and concerns so the path forward for its successor would at least be clearer.
There is already initial manifestation by NPC that it may invoke its right of first refusal when the US firm insists on its "no government consent" position, as to the assignability of their energy conversion agreements to the successor-company.
Mirant (through its then parent company Southern Energy) has acquired the Asian portfolio of Gordon Wu’s Consolidated Electric Power Asia, not only the Philippine assets but also the Shajiao C facility in China and some development contracts in Thailand, Australia and Mongolia.
Since its entry in 1997, records show that Mirant has been registering hefty profits from its Philippine operations, generating revenues of roughly $ 500 million annually from 2002 to 2004; and even emerged as the top earning corporation in 2003. It has likewise ranked consistently among the most profitable companies in the country, geared on an annual ranking of companies based on their return on equity.
In fact, during the interagency committee review of the IPP contracts, the Mirant contracts were severely criticized for having rapid payback periods, citing that Pagbilao has in fact paid out 59-percent of Mirant’s initial equity investment in its four years of operations from 1996 to 2000; and this only meant that by now, the company has already fully recovered its invested capital and even enjoyed immense profitability.
A recent study by the International Finance Corporation (IFC) has likewise indicated a 17.5-percent internal rate of return for the 735-megawatt Pagbilao coal-fired power project;and given the US firm’s leveraging of the overnomination clause (which was up to 105-percent) for the project, it was emphasized that the returns are actually even higher.
It was argued that since Mirant already recovered a significant portion of its invested capital with a reasonable return, the group emphasized that the sale proceeds shall not go way beyond its book value.
Mirant claimed that since equity shares are the ones being sold, with transaction to be finalized in its Asia Pacific unit in Hongkong, consent to be extended by the government may no longer be necessary.
Investors though are setting forth liberal assessment of these arguments, noting the level of risk premia factored in on project developments.
As an independent power producer (IPP) contracted by state-run NPC, Mirant is guaranteed full recovery and return on its investment spread over the life of its contract period.
In 1996, a dispute between NPC and CEPA (original owner of Mirant) ensued with the latter’s claim for lost revenues of $ 100 million due to delayed completion of the transmission line, paving the way for the state-run power firm to agree to a four-year extension of the ECA for the facility from 25 to 29 years.
posted by philpower @ 7:46 AM,
