PNOC-EDC hedges ¥8-B loan

PNOC-Energy Development Corp., the newly-acquired geothermal power development arm of the Lopez-controlled First Gen Corp., has successfully hedged ¥8 billion or 67 percent of the ¥12-billion Miyazawa loan facility maturing on June 2008.

In a disclosure to the Philippine Stock Exchange, PNOC-EDC said the hedging scheme is part of ongoing currency risk management program.

PNOC-EDC investor relations manager Erudito Recio said the hedging scheme was undertaken in two tranches with an AA-rated international commercial bank as the counterparty.

Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity.

The geothermal power firm, however, did not give details on which banks and what interest rate they got for the recent hedging program.

Early this year, PNOC-EDC said it plans to implement a hedging program for its ¥34 billion loan.

PNOC-EDC president Paul Aquino said the proposed loan restructuring is expected to generate savings for the company.

The company is scheduled to have bullet payments of ¥12 billion in June 2009 and ¥22 billion in 2010.

“The plan to hedge is still there. But we are still studying that due to the volatility of the yen,” he said.

In mid-2007, PNOC-EDC, then still majority-owned by the government, has sought the approval of monetary authorities to engage in a hedging scheme.

Eighty percent of PNOC-EDC’s long-term loans is yen-denominated worth about P18.6 billion in end-2007.

“To partially mitigate foreign exchange risk, the company is hedging its ¥12 billion Miyazawa I loan through a yen/dollar accumulating forward structure (principal amount only),” the company earlier said.

The Miyazawa I loan, which will fall due for bullet payment on June 1, 2009, is equivalent to 23 percent of the P21.5-billion total yen-denominated liabilities and represents 16 percent of the total long-term foreign loans as of June 2006.

As of end 2007, PNOC-EDC’s long-term debt amounted to P23.12 billion. Listed in the PSE last year, PNOC-EDC posted a 26-percent increase in its net income to P8.6 billion from P6.8 billion in 2006.

Revenues for the period reached P18.783 billion, the bulk of which came from the sale of electricity at P11.291 billion, steam sale at P4.521 billion, interest income on service concession, at P2.236 billion, revenue from drilling services at P624 million and construction revenue at P108 million.