ACEN (AC Energy Philippines) burning cash from operations, value hinges on the execution of Ayala energy assets consolidation into ACEN

AC Energy Philippines Inc. (ACEN) has been burning cash from its operation during the first half of 2020 (1H 2020). It burned 0.9 Billion Pesos from its operation during 1H 2020, yet ACEN has steadily been rising.

ACEN’s cash in its balance sheet as of end of 1H 2020 came from borrowings. Without the cash generated from operations, the cash cushion of 5 Billion Pesos from borrowings will not be enough to pay the debts due for repayment in the next 12 moths in a total of 6.9 Billion Pesos.

Despite the gloomy finances of ACEN, it has been steadily rising and now is at 2.71. We check why.

We found out that on March 18, 2020, the Board of Directors of ACEN approved the consolidation of AC Energy’s international business and assets into ACEN via a tax free exchange, whereby AC Energy will transfer its shares of stock in Presage Corporation (AC Energy’s subsidiary holding company that owns AC Energy’s international business and investments) to ACEN in exchange for the issuance to AC Energy of additional primary shares in ACEN (assets for-shares swap), on terms to be set by the ACEN’s Executive Committee.

On April 1, 2020, ACEN’s Executive Committee approved the terms of the exchange at 16,685,800,533 additional primary shares of ACEN to AC Energy at an issue price of P2.97 per share in exchange for property consisting of 100% of AC Energy’s shares in Presage. As at August 10, 2020, AC Energy and ACEN are still in discussions as to the timing and the implementation of the exchange, considering the regulatory approvals required, and the earlier tax exchange between the two parties involving AC Energy.

Now, we see why ACEN’s share is rising. ACEN’s share is racing to 2.97 the value of ACEN’s share in the exchange of AC Energy’s assets.

As of August 10, 2020 ACEN and AC Energy are still in discussions as to the implementation of the exchange. We have too closely monitor this transaction as any changes in the terms of the exchange can cause immediate reaction from the market.

Critical in this transaction is how liquidity will be provided to the combined entity and whether the combined entity will be a cash generating machine. We don’t have the details yet on the transactions. We think the plan of the Ayala group was to add liquidity and capital to the combined entity through a follow-on public offering of ACEN shares.

With the COVID-19 pandemic changing the dynamics of everything we will not know if the 2.97 value of ACEN will still hold.

Disclaimer: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent perspective.  Accuretti Systems Inc. does not hold any shares of AC Energy Philippines, Inc.

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