ACEN plans sale of diesel plants to parent to meet 100% RE goal

ACEN [ACEN 2.62 ?1.2%; 154% avgVol] [link], the Zobel Family’s renewable energy holdco, said that its board of directors approved the sale of its ownership interest in three diesel power plants to AC Energy and Infrastructure Corporation (ACEIC), which ACEN’s parent company and a subsidiary of Ayala Corporation [AC 562.00 ?0.1%; 94% avgVol]. The three diesel plants have a combined power generation capacity of 189 MW. The disclosure did not say the price that will be paid by ACEIC to ACEN for the power-producing assets, or in what form the payment will be made, only that the total consideration is “less than 10% of the total assets of [ACEN]”. ACEN said that the “divestment will help [ACEN] achieve its goal of reaching 100% renewable energy generation by end-2025.”

MB BOTTOM-LINE:  ACEN isn’t required to mention the payment details (price, terms) because it asserts that the value that it will pay is less than 10% of the company’s assets. That’s the line the SEC/PSE have drawn in the sand; anything above that line must be properly disclosed, and anything below that line does not require comprehensive disclosure. ACEN has P329 billion in assets, so all they’re saying here is that the value of this transaction is less than P32.9 billion. Ten years ago, diesel barges sold for about P4.4 million per MW of capacity (~P6.1 million adjusted for inflation), so that would very very loosely peg the overall value of this transaction at around P1.2 billion (189 MW * P6.1 million). This is just to ballpark what's going on. While that estimate is a lot less than ACEN’s comprehensive reporting cut-off, that’s still a pretty significant amount of money, and shareholders would probably still want to make sure that ACEN is getting a good deal. That’s part of the risk that comes with related party transactions below the reporting threshold. This is where the integrity of the management team and the past behavior of the company come into play for long-term investors. ACEN is in a “trust but verify” bucket for me, which is the highest bucket I have for companies. For a quick overview of the other issues that could be raised by this transaction, I recommend checking out Mokongboy’s Twitter post [link].
 

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