Thursday, July 13, 2006

Mirant to sell RP, Caribbean assets

By Donnabelle L. Gatdula
The Philippine Star

Atlanta-based Mirant Corp. will sell all of its remaining assets in the Philippines and in the Caribbean as part of the company’s overall financial restructuring coming off its recent emergence from bankruptcy.

Mirant Philippines Corp., the local subsidiary of Mirant Corp., is the country’s largest privately-owned power producer. The sale of its assets would raise approximately $2 billion for the parent firm.

A well-placed industry source said among the possible foreign buyers of Mirant assets in the Philippines are AIG, One Energy, Mitsubishi, China Light & Power, Korea Electric Co., Tokyo Electric, and Kyushu Electric. Potential local investors, on the other hand, include the Ayalas, the Lopezes, the Aboitizes, and telecom tycoon Manuel Pangilinan.

"Mirant is commencing auction processes to sell its Philippines and Caribbean businesses," the US energy firm said in a disclosure to the New York Stock Exchange.

Mirant said the sale, to be carried out through "an auction process", will still have to undergo regulatory and other approvals and consents.

Industry observers said the auction of Mirant ‘s assets will be far more attractive than the sale of the National Power Corp.’s power generating assets and could affect the ongoing privatization of the state-owned power facilities. "Competition for potential buyers will be tough as Napocor and Mirant assets would be put on the auction block at the same time."

With the sale of its assets, Mirant said these businesses will be regarded as "discontinued operations" starting the third quarter of 2006.

Mirant has tapped Credit Suisse as its financial advisor for the sale of the Philippine businesses while JPMorgan will serve as financial advisor for the sale of the Caribbean businesses.

Mirant has ownership interests in three power generating facilities in the Philippines: 1,218-megawatt Sual, the 735-MW Pagbilao and a 20-percent stake in the 1,500-MW Ilijan. The Philippine businesses contributed $370 million to the parent firm’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in 2005.

With its decision to sell its Philippine businesses, Mirant has likewise adjusted its plan to recapitalize. The new recapitalization scheme will now consist of a $700-million term loan for which Mirant has obtained a commitment from Credit Suisse. The term loan will be prepayable at par.

Energy Secretary Raphael P.M. Lotilla said Mirant’s decision to sell its prime assets was not entirely unexpected given the financial condition of the mother company in the US, which has prompted the latter to come up with a strategic plan to enhance shareholder value after emerging from bankruptcy protection in the US in January.

A few months ago, Mirant Philippines had already started divesting its assets by selling its entire Visayas-based power plants to Metrobank Group’s Global Business Holdings Inc. Prior to the sale, Mirant Philippines owned 50 percent of Mirant Global Corp., a joint venture company, with the balance held by Global Business Holdings and First Metro Investment. Mirant Global operates the Toledo coal and diesel-fired plants in Cebu, the Panay diesel power plant in Iloilo City, and a Mindoro diesel plant.

Lotilla said the Philippine government, for its part, is ensuring that the buyers of these assets are qualified to perform the obligations of Mirant Philippines to Napocor, which include the buyer’s maintenance of the IPP (independent power producers) contracts attached to the assets on sale.

The energy official added that the government still believes that operations in these plants remain profitable and looks forward to keen interest among investors.

Lotilla also pointed out that the pull-out of Mirant’s businesses will not affect the country’s economic condition.

"Higher expected economic growth supported by rising foreign direct investments demonstrates that investor confidence remains intact and will help sustain the profitability of these plants," Lotilla said.

"Investors remain upbeat on the country’s investment climate following an improved fiscal position arising from the surplus registered in April, strong macroeconomic fundamentals and better-than-expected first quarter performance of corporations," he said.

It could not be determined though if the buyers of Mirant’s assets will continue the commitment to help the government in its rural electrification program. Late last week, Mirant and the Department of Energy signed an electrification project which aims to energize 55 barangays in Mindanao. Mirant has committed to energize 500 barangays nationwide up to 2009.

On the sale of Mirant‘s plants in the Visayas, Lotilla said the entry of new investors unsaddled by Mirant’s financial woes has helped make prospects for expansion of generating capacity in the Visayas more realizable.

"There is a sense of excitement in the power sector generated by Mirant’s decision to sell its businesses in the Philippines. Beyond acquiring Mirant’s Philippine assets, major international and domestic players see new opportunities for expansion. The announcement has ended the uncertainty hanging over Mirant’s participation in new power projects. Hobbled by financial challenges, the US mother company of Mirant is not in a position to finance expansion projects in the Philippines. But other major players who are not suffering from such a handicap see their possible acquisition of Mirant’s Philippine assets as a take-off point for acquiring additional generation capacity either through new or expansion projects or the acquisition of existing plants and assets of Napocor," Lotilla said.

Lotilla noted that the most recent proof that ownership changes like this have an overall positive effect is Mirant’s sale of its assets in Panay and Cebu in the Visayas. The new owners led by Metro Global are looking at additional projects which would support the economic and power demand growth in these two major islands, he said.

He added that the transfer of the Caliraya-Botocan-Kalayaan (CBK) generation plant by its operators which included Argentine firm IMPSA, to two very reputable Japanese companies Sumitomo and J-Power also provides a good example. "The CBK joint venture is now well-positioned to build additional capacity and to acquire Napocor assets."

In the same disclosure, Mirant said it will also undertake a "Dutch auction" tender offer for up to 43 million shares of Mirant’s common stock for an aggregate purchase price of up to $1.25 billion.

Mirant’s shareholders will be given the opportunity, subject to certain conditions, to sell all or a portion of their shares of Mirant common stock to the company at a price not less than $25.75 and not more than $29 per share. The tender offer will commence tomorrow and will be funded through a combination of cash on hand and cash distributed to Mirant upon completion of a term loan to be entered into by Mirant’s Philippine businesses.

Proceeds for the tender offer will come from available cash on hand of $885 million and cash to be distributed to Mirant upon completion of the $700-million term loan to be entered into by Mirant’s Philippine businesses. The remainder of the term loan will be used to pay off existing debt in the Philippines.

Aside from the Philippine businesses, Mirant will also be selling its net ownership interest in the Caribbean which comprises an aggregate 1,050 MW. The ownership includes controlling interests in two vertically-integrated utilities: 80-percent interest in Jamaica Public Service Co. Ltd. and 55-percent interest in Grand Bahama Power Co. Mirant also owns a 39-percent interest in the Power Generation Co. of Trinidad and Tobago (PowerGen), and a 25.5-percent interest in Curacao Utilities Co. In 2005, the Caribbean businesses contributed $156 million in adjusted EBITDA.

"Our strategic plan reflects our continued commitment to enhance shareholder value, both through the return of cash to our shareholders and through our continuing US business," Mirant chairman and chief executive officer Edward R. Muller said.

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