Dennis Uy’s deep pockets lined with foreign loans

It’s a David versus Goliath story of sorts as Davao’s Dennis A. “DAU” Uy takes Malampaya away from the hands of global energy big boys.

DAU is certainly making history. In less than two years, and at a time when the world is facing an extraordinary crisis, this businessman from Davao quietly acquired control of the country’s much-touted crown jewel in the energy sector 45 percent from Netherlands-based Royal Dutch Shell, announced just last week, and 45 percent from California-headquartered Chevron Corp. in 2020.

If everything goes as planned, DAU will have 90 percent of Malampaya, the deep water gas-to-power project in offshore Palawan, by yearend.

His holding company Udenna Corp. hardly heard of prior to 2016 or before he started his buying binge of companies left and right is quite a David compared to these two multinational Goliaths, Shell and Chevron, but Davao’s most aggressive businessman just got what he wanted.

How did he do it?

DAU was able to get financing from foreign lenders ING Bank, Deutsche Bank and ANZ or the Australian and New Zealand Banking Group people familiar with the matter told me. These are the same financial giants that bankrolled his initial acquisition in Malampaya Chevron’s 45 percent stake.

Farallon Capital, an American investment firm, also extended help for the acquisition of Shell’s stake, but I’m not sure to what extent.

There was no local bank involved in the financing, and much of the transaction was worked out in Singapore, I’m also told.

Shell’s stake is at least $460 million, while Chevron’s stake amounted to $565 million or $1 billion in all.

Beating other bidders

The race for Shell’s 45 percent stake in Malampaya was a tight one. More than 30 groups expressed interest, but only four serious parties, local and foreign, made it to the last few legs.

The group of tycoon Manuel V. Pangilinan was among those who vied for Shell’s stake after also trying its luck with Chevron’s stake earlier.

Tycoon Ramon Ang of San Miguel Corp., who said earlier he was interested in Shell’s stake, ended up not bidding.

DAU’s bid

Uy had the right to match other offers for Shell as he was already a partner in Malampaya with his Chevron stake. But he did not have to, as he already gave the best offer, I also heard.

How he managed to get the faith and confidence of foreign lenders surprised some people in the local business scene because, for one, lending has been tight.

It’s also no secret that some of his companies, like other Philippine firms, are experiencing financial distress, no thanks to COVID-19, and have been negotiating with banks to extend debt payments. In fact, DAU’s Group has been selling assets to better manage its debt.

But perhaps the foreign banks’ nod reflects not just their confidence on DAU’s ability to meet his obligations, but more so on the viability of Malampaya.

Crown Jewel

It is a prized asset after all, so much so that Shell and Chevron didn’t give up even a portion of their stakes since the project commenced in 2001.

Malampaya, which produces natural gas, supplies up to 40 percent of the region’s power requirements.

It rakes in an estimated net income of $100 million yearly or a whopping P4.5 billion, and while the gas is thinning out, it’s not as if the wells will dry up tomorrow.

Another reason Malampaya is a coveted asset is its 504-kilometer subsea pipeline that transports gas to Batangas from Palawan. Even if Malampaya’s gas thins out, this pipeline will still be very useful for those exploring nearby wells.

End of an Era

Why then did Shell and Chevron give up the project? Perhaps it’s because both have been rethinking their future and are forecasting lower energy prices. They are also locked in a $1 billion tax dispute with the government.

Lucky for them, one man’s trash is another man’s treasure, so there goes DAU on another acquisition, his biggest so far.

For the country’s newest tycoon, a proud supporter of President Duterte, it’s not going to be a walk in the park.

To tweak the cliche, with great power comes big headaches and, in Malampaya’s case, DAU’s newly acquired power is quite literal and it’s not going to be easy.

A small hitch would affect millions of Filipinos and the economy. Note that every time Malampaya shuts down, Luzon plunges into darkness.

However, if DAU runs it well, Filipinos will continue to have power sourced from Malampaya. He will get his money back sooner than he thinks, and make even more money if the contract is extended and more gas resources are discovered.

On the other hand, if he decides to flip the asset and sell it to another company, he will also make money, minus the headaches of running it. He could sell it back to the government through PNOC, which holds the remaining 10 percent stake in the project, but the public will likely oppose it because that’s a lot of taxpayers’ money.

Or he could sell it to another foreign company. But, at a time of a geopolitical crisis, there will be mistrust if he sells it to a Chinese company.

But I’m only guessing.

Only DAU knows for sure what will happen to Malampaya in his hands and only time will tell if he succeeds with his plan or not. Either way, DAU will surely be making history.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com