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Stock Commentary

Alternergy Holdings files for P2.1-billion IPO in November

Merkado Barkada
Alternergy Holdings files for P2.1-billion IPO in November
Starting off with what I like, I’m a big fan of IPOs that raise money to build stuff, and here, ALTER is using this money to acquire a new facility and push the construction of several others, starting in the quarter that it goes public. No delay.
Merkado Barkada

Alternergy Holdings [ALTER 1.48 pre-SEC] [link] has filed with the SEC to sell up to 1,281,430,000 primary shares, and up to 192,220,000 secondary shares (as part of an over-allotment option), to raise approximately P2.1 billion through an IPO that ALTER plans to list in late November. ALTER is a holding company that “holds a portfolio of investee companies” (subsidiaries) that are engaged in renewable energy projects related to “wind, solar, hydro, floating solar and battery storage power.” According to ALTER, it has 67 MW of operating assets in wind and solar, plus 62 MW of hydro and solar projects that have “reached financial close”. ALTER says that its entire project pipeline has over 1.2 GW of gross capacity.

The primary/secondary split: Counting the over-allotment option as secondary shares (as we should), the deal is still nearly 87% primary, which (to me) is very healthy. The proceeds of the sale of primary shares go directly to ALTER to use to grow its business and make more money; the proceeds of the sale of secondary shares just go to the people or companies that are selling the secondary shares (in this case, a long list of private individuals and companies). A deal that is 87% primary has a growth-oriented stance.

The use of proceeds: ALTER expects to have approximately P1.8 billion in net proceeds (assuming a P1.48/share price, excluding secondary share sales, and after fees are deducted). Out of this amount, ALTER intends to spend 36% on funding the construction of the Solana Solar Project in Q4/22 and the construction of the Lamut Hydro Project in Q1/23, 29% on acquiring a majority stake in Kirahon Solar Energy Corp., 22% to “pre-development” expenses related to the Ibulao Hydro Project, Tanay Wind Project, Alabat Wind Project, and Calavite Offshore Wind Project, plus 12% on “general corporate purposes” and “working capital”.

The business: ALTER earns its income (at the subsidiary level) from selling electricity from operating power plants. The money that it has made from this activity has increased year-on-year for the past four years; P18.5 million in 2018, P22.7 million in 2019, P32.7 million in 2020, and P35.9 million in 2021. For all of these years, ALTER’s operational expenses have exceeded its operational income, causing it to post negative net incomes for every year for which we have data, except for the most recent period in 2021. In 2018, ALTER posted a net loss of P42 million, in 2019 a net loss of P51 million, in 2020 a net loss of P31 million, and in 2021 a net gain of P112 million. ALTER attributes this gain in 2021 primarily to a one-off “reimbursement” that it received for development costs incurred on behalf of an affiliate.
 

MB BOTTOM-LINE

I haven’t done any work to dig into the valuation here, and to compare ALTER against peer operating power generation companies to see if that valuation is in line with what we’d expect, or if it represents a discount or a premium.

Starting off with what I like, I’m a big fan of IPOs that raise money to build stuff, and here, ALTER is using this money to acquire a new facility and push the construction of several others, starting in the quarter that it goes public.

No delay.

Now for the rest, considering the company’s well-documented history of operational losses, and the relatively slow progress that it’s made to catch income up to expenses during that time, it’s hard to see where ALTER is going with this.

Like my coverage of the other recent IPO announcement, ORCA Cold Storage [ORCA], I think the potential value of this IPO is going to be heavily impacted by whatever 2022 financials that ALTER and ICCP will release to us.

Whether that’s Q1/22 or H1/22 data, it will give potential investors an idea of whether or not this company has cracked the code in terms of producing renewable electricity profitably.

Again, there’s a lot more information to consume about this before I’m going to make up my mind on it one way or the other, and while I’m excited to see more companies getting to market, and more renewable energy getting developed for our overburdened grid, I’m still waiting for the hook to make this opportunity make more sense.

Let’s wait on the 2022 numbers.

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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

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