Philippine Currency

Analysts say Sys deal will make Citicore IPO more attractive

MANILA, Philippines — Landmark P5 billion stake sale deal between tycoon Edgar Saavedra’s Citicore Renewable Energy Corp. (CREC) and Sy family-led SM Investments Corp. It could help attract more investors to the former's upcoming initial public offering (IPO) and beef up its efforts to use the new capital to expand its solar power portfolio, analysts said.

Juan Paolo Colet, managing director of investment bank China Bank Capital Corp., said in a text message on Wednesday that the deal gives China Railway Construction time to build on its P12.9 billion first Waiting for “better market conditions” before public offering (IPO).

“Since they received P5 billion from SM, there is now less pressure to raise equity. At the same time, the new cash allows CREC to better execute on its project pipeline, which may make their IPO more attractive,” Colet explain.

Prior to this, SM Investments purchased 1.884 million shares, or 29%, of CREC's shares in real estate investment trust Citicore Energy REIT Corp. (CREIT) to promote SM Group's sustainability agenda.

read: Citicore raises P5B by selling shares to SM Investments

SM Investments said in a disclosure to the Philippine Stock Exchange on Wednesday that the stock was priced at P2.6534 per share.

Suspend trading

Trading in CREIT stock was halted Wednesday ahead of the announcement of the stock sale. Its shares closed at 2.79 pesos per share on Tuesday, giving it a market capitalization of 18.26 billion pesos.

CREC, part of the Megawide Group, clarified that it will remain the single largest shareholder of CREIT after the transaction, holding 32.88% of the shares.

Proceeds from the sale of the shares will be used to develop CREC's 1,583 MW solar power projects at eight locations across the country.

Oliver Tan, president and CEO of CREC, said in the disclosure: “Considering SM Group's energy needs, we believe that SM Group's entry and investment in CREIT and the cooperation with CREC will unlock potential synergies.”

CREIT is the first renewable energy REIT owner to list on a local exchange. It is also considered the largest real estate investment trust with a total leasable area of ​​approximately 7.1 million square meters.

These are mostly solar farms leased to REIT sponsor China Railway Engineering. It was scheduled to go on sale this month.

April Lynn Tan, chief equity strategist at COL Financial Group, said that for SM Group, the deal will allow it to finally make headway in the renewable energy sector.

Mainly solar farms

“The benefit of owning a CREIT is that it's already operational and you don't have to build it from scratch. It also generates reasonable cash flow,” Tan said.

Read: Stock market allocates P35B for solar capex for first time

The country's largest blue-chip conglomerate will also soon list real estate investment trusts (REITs) composed of real estate firm SM Prime Holdings Inc.

Frederic DyBuncio, president of SM Investments, noted that sustainability is an “ongoing priority” for the company, which currently operates in banking, retail and real estate development.

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“This is why we continue to increase investment in sustainable emerging industries that have a positive impact on the economy, and the renewable energy industry is one of them,” he said.

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