May 25--Considered one of the government's crown jewels in the power industry, EDC is the country's second-largest geothermal energy producer. Globally, the renewable energy firm is the second largest.

The Lopez Group acquired the company after the government auctioned state-owned Philippine National Oil Co.'s 60-percent stake in EDC in November last year to raise cash.

The group's power generation unit, First Gen Corp., won the bidding with an offer of P58.50 billion.

First Gen's acquisition of EDC gave it an established anchor for its drive to consolidate its resources in pursuing capital intensive renewable energy projects, as it had publicly shunned investments in relatively cheaper yet dirtier conventional power plants, such as coal-fired ones.

The company's take over of EDC also came at an opportune time when the government passed a bill that gave fiscal and non-fiscal incentives to renewable energy projects this year, making it even more profitable to enter into such ventures.

Unforeseen development

But what First Gen did not count on was the backing out of its Netherlands-based partner, Spalmare Holding BV, in the EDC buyout.

The partner opted out of its joint venture with First Gen in Red Vulcan Holdings Corp., the corporate vehicle the companies used in bidding for EDC, leaving the Lopez unit with the whole lock, stock and barrel of the acquisition.

This made First Gen highly leveraged because it had to shoulder on its own P13.86 billion in loans secured from lenders for the EDC sale. (The amount was supposed to mature this month, but the company was able to negotiate a five-year extension with banks recently.)

Although First Gen could opt to keep 100-percent ownership in Red Vulcan, and thus a controlling stake in EDC, it would be too highly indebted to do so for comfort as it would have to dilute more shares to balance its capital structure and spend more for dividends to shareholders.

But the company could not dispose of its 40 percent stake in Red Vulcan at a price it could dictate, since potential investors would use First Gen's financial standing as a bargaining chip.

"I guess it's fair to say from our perspective, if we had completed it last year maybe the valuations may not be as attractive to us," said Francis Giles Puno, First Gen chief financial officer. "And so our focus was basically to normalize our finances, first and foremost.