Live Case Study: GREEN

Greenergy Holdings, Inc. (GREEN, the Company) has wonderful business developments that are potentially capable of bringing substantial future cash flow for the Company. The recent approval of feed-in tariff rates by the Energy Regulatory Commission (ERC) lowers the riskiness of renewable energy businesses in the future. [1] Feed-in tariff rates are fixed rates payable to renewable energy producers for not less than 12 years. Also, renewable energy producers will have priority purchase and transmission which assures the sale of their produced electricity. [2]

GREEN’s disclosure on November 16, 2012 contains the following: [3]

  1. Investment in companies or acquisition of assets relating to the businesses of Mr. Antonio L. Tiu.
  2. Amendments of the Company’s Articles of Incorporation and By-Laws to effect the following changes:
    1. Change in corporate name
    2. Increase in authorized capital stock up to P10 billion
    3. Issuance of shares through private placement transaction.

     

GREEN is in need of capital for their renewable projects. The Company has a short-term investment commitment of P252 million for the biomass project with Cleantech. [4] GREEN managed to meet the 45-day deadline of the required capital infusion by issuing new 25.2 billion shares and had 25% of the increase in shares issued to investors as private placement. For those new in corporate law, an increase in shares is required to be 25% subscribed and at least 25% of the subscribed be fully paid.

As illustrated above, GREEN still has to raise P167 million (P252m – P85m) in order to comply with commitment with Cleantech.

Other than commitment with Cleantech, GREEN has another upcoming capital intensive projects that are not yet fully funded which are the hydropower projects, currently under a preliminary agreement with Hydroring Capital BV (HC) and subject to financial and technical feasibility. The joint venture agreement is scheduled to be signed until January 13, 2013. [5]

With GREEN’s business development, it could be expected that GREEN will raise capital through the market in the near future but not before increasing shareholder value.

It could then be expected that GREEN may do the following:

  1. Change in corporate name.
  2. Increase in authorized capital stock to P10 billion.
  3. Acquisition of companies owned by Mr. Antonio Tiu through issuance of shares.
  4. Declare as property dividend their 39% interest in Music Semiconductors Philippines, Inc. (MSPI).
  5. Declaration of follow-on offering.

Rationale of the expectations:

  1. The change in name will properly reflect GREEN’s new businesses.
  2. Increase in authorized capital stock will provide GREEN more shares for issuance.
  3. Issuance of GREEN shares to acquire businesses relating to Mr. Antonio L. Tiu will allow GREEN to obtain control without any cash outlay. The issuance of shares will potentially wipe out the deficit of GREEN which stands at 284 million as of September 2012 and increase the assets of GREEN making it more attractive for investors.
  4. Distribution of MSPI shares as property dividend will increase shareholder value.**
  5. The follow-on offering will enable GREEN to raise the much needed cash.

GREEN’s par value could reasonably be expected to be increased from its current P.01 since an authorized capital stock of P10 billion at P.01 par value will translate to 1 trillion shares. There are no regulatory limitations for the number of authorized shares for issuance but 1 trillion shares for issuance sounds awkward in my opinion.

** This expectation was supported in the recent definitive information statement of the company where GREEN includes in the agenda for December 11, 2012 stockholders meeting their intention to list MSPI. [6]Listing of MSPI will most likely be through “listing by way of introduction” which requires distributing the shares to the public through property dividend just as PX and MER did with PXP and ROCK respectively.

Sources:

  1. ERC Approves Feed-in Tariff rates, http://www.erc.gov.ph/PressRelease/ViewPressRelease/ERC-Approves-Feed-in-tariff-rates
  2. RA 9513, http://www.doe.gov.ph/Laws%20and%20Issuances/RA%209513.pdf
  3. Board approval of investment or acquisition of assets, amendments to Articles of Incorporation and By-Laws, issuance of shares through private placement; Lifting of trading suspension, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8302_GREEN.pdf
  4. Comprehensive Corporate Disclosure re: Investment Agreement with Cleantech; Trading halt, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6341_GREEN.pdf
  5. Preliminary agreement with Hydroring Capital BV re: development operation and management of multiple hydropower projects, infrastructures and/or facilities in the Philippines, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6703_GREEN.pdf
  6. Definitive Information Statement for Annual Stockholder’ Meeting on December 11, 2012, record date November 16, 2012, http://www.pse.com.ph/resource/corpt/2012/GREEN_D20IS_11202012.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Greenergy Holdings, Inc. (PSE: GREEN)

Greenergy Holdings, Inc. (GREEN, the Company) has its interests in waste management and renewable energy. Currently, GREEN has the following business structure:

MSPI is engaged in development, sales, marketing and logistics of semiconductors products. On August 1, 2011, the SEC approved the increase in authorized capital stock of MSPI but GREEN waived its right to exercise pre-emptive rights in MSPI effectively decreasing their interest down to 39% from 100%.

TWMRSI is engaged in the business of building, operating and managing waste recovery facilities and waste management system within the Philippines. As of September 2012, the Company had already advanced P235 million to TWMRSI in the form of future stock subscription, in other words, it is a cash advance that can be converted to equity. The 235 million cash was used to construct waste recycling facilities (construction in progress). TWMRSI is not yet in commercial operations.

WINSUN was incorporated on June 22, 2012 to engage in renewable energy projects. WINSUN is not yet in commercial operations.

On November 6, 2012, Biomas Holdings, Inc. was incorporated pursuant to the Company’s investment agreement with Cleantech Projektgesellschaft MBH (Cleantech),an infrastructure fund managed by ThomasLloyd Global Asset Management.[1] Cleantech will infuse P425,537,300 cash for 20,776,856,000 shares of GREEN and will be issued the following warrants:[2]

  1. 10,489,500,000 shares at a strike price of P0.02 with 1 year expiry from the issuance.
  2. 10,489,500,000 shares at a strike price of P0.03 with 3 year expiry from the issuance.

The Company on its part shall separately raise fresh capital amounting to P252 million. On October 31, 2012, private placement investors subscribed to GREEN shares amounting to P252 million.


Other Significant Business Development

On August 31, 2011, Memorandum of Agreement (MOA) was executed with Tianjin Tianbo Investment and Development Corporation (TTIDC) for the development of 1,000 MW wind energy project with an estimated investment of at least $1.3 billion within a 10-year period. [3] On March 13, 2012, TTIDC assigned to its affiliate China Power (Tianjin) New Energy Development Co. Ltd. its rights and obligation under the MOA.

On September 14, 2012, GREEN entered into a preliminary agreement with Hydroring Capital BV (“HC”) for the development, operation and management of multiple hydropower projects using the Hydroring concept. The project is subject to financial and technical feasibility and due diligence and the execution of definitive statements. The signing of joint venture agreement is scheduled within 121 days from date of signing of the preliminary agreement or until January 13, 2013.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Petroenergy Resources Corporation (PSE: PERC)

Petroenergy Resources Corporation (PERC, the “Company”) is engaged in oil and exploration development, geothermal energy, and wind power.

Oil and Exploration Development

The Company has the following interests:

The Company has minority interest in Gabon, West Africa oil fields namely, Ebouri, Etame, and Avouma. The oil fields produced 7.3 million barrels with a daily production averaged 22,100 barrels for 2011. Currently, 100% of the Company’s revenues are sourced from their interest in Gabon oil fields. There were no disclosures yet regarding the renewal of their Production Sharing Contract (PSC) in Gabon. The contract can be extended every 3 years and is already the sixth contract period with Gabonese government. Historically, the contract is extended 2 years before expiration.

Amount spent for the development activities in the Gabon oil field:

Philippine Oil Exploration Activities

 Among all the service contracts (SC) that PERC owns, SC 14C is at the advanced stage where drilling is planned to be by the end of 2012.

The most promising is their interest in SC 51. SC 51 has the following participants:

*On October 23, 2012, Frontier Oil Corporation (Frontier) entered into a Farm-in Option Agreement where Frontier can acquire 80% interest in the southern area of SC 51 through shouldering all the costs of drilling an exploratory well in the area.

SC 51 is divided into northern (on-shore) and southern areas (off-shore Cebu). The on-shore prospect, Duhat, is situated on the northern tip of Leyte.

Northern Leyte has been described by geologists as containing the most natural oil seeps in the Philippine archipelago. Duhat was drilled in 2011 but the well reached only 321 m, far from the programmed 1,000 m depth, when it had to be abandoned due to adverse pressures. Despite the shortfall, oil and gas indications were observed and a working seal and structure conductive of hydrocarbon entrapment were proven, indicating the presence of an active petroleum system. New seismic data is scheduled to be acquired in July or August of 2012 to locate a new well on the same prospect.

Geothermal Energy

The DOE awarded PERC the Maibarara geothermal service contract in February 2010. In May 2010, the company entered into a joint venture agreement through the Company’s wholly owned subsidiary, PetroGreen Energy Corp. (PGEC), with Transa-Asia Oil and Energy Development Corporation (TA) and state owned PNOC Renewables Corporation (PNOC-RC) to jointly develop and operate the 20 MW geothermal power project.

In August 2010, a joint venture company Maibarara Geothermal, Inc. (MGI) was incorporated with PGEC owning 65%, TA (25%), and PNOC-RC (10%). The Company expects MGI to be in commercial operations by the 2nd half of 2013.

 

Wind Power

The Company’s Nabas Wind Power Project shows promising results where data gathered indicated that it can sustain 40-50 MW wind farm development.

Other Data:

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.