Ayala brand works magic for the mainly fossil energy company ACEN

AC Enery Corporation (ACEN) disclosed in its 2020 Annual Report that it has an attributable thermal energy generating capacity of 468 MW. Thermal energy power plants run on fossil fuel like diesel and coal. Its biggest thermal energy is a coal plant with a power generation capacity of 244 MW.

ACEN’s attributable renewable energy capacity stood at only 266 MW. Renewable energy capacity is just 36% of ACEN’s total attributable energy capacity.

In terms of financials, ACEN’s balance sheet doesn’t seem to look like a fortress. The ratio of its total liabilities to its total capital as of year-end 2020 is at 1.98. ACEN as of year-end 2020 has a total cash balance of 5.1 billion Pesos, but that cash balance seems to look like they were all from borrowings. ACEN generated cash from operations of 3.8 billion Pesos, but it spent a net 14.3 billion Pesos for investments. The 14.3 billion Peso investments negated all the cash it had and the cash it generated from operations. To put cash into the balance sheet ACEN resorted to short-term and long-term borrowings. It also borrowed money to pay borrowed money. ACEN netted 6.1 billion Pesos from financing activities.

ACEN, despite being an average energy company, is well valued. It has a market capitalization of 135.73 billion Pesos at the closing price of 6.80 Pesos a share.

ACEN has leapfrog its peers in terms of valuation.

What makes ACEN so valuable? It could be the “Ayala” brand. Ayala Corporation bought the company from the PHINMA group. Ayala then portrayed ACEN as a renewable energy vehicle touting its renewable energy projects in the country and around the globe. Since then, ACEN’s valuation kept on rising reaching even to a peak of 10.10 apiece.

The Ayala group, after infusing its domestic and overseas renewable energy assets and their corresponding debts, seems not anymore keen on putting more of their capital into ACEN. ACEN raised 5.4 billion Pesos of capital through stock rights offering without the participation of the Ayala parent company.

Now, ACEN will be doing a follow-on offering to raise cash of 13.1 billion Pesos. In the follow-on offering 10.3 billion Pesos will accrue to ACEN for the primary shares issuance. The parent Ayala company (AC Energy and Infrastructure) will raise 2.6 billion Pesos in the offering (estimates attributes over-subscription shares to AC Energy and Infrastructure).

In now appears that the Ayala group is cashing out instead of contributing capital into ACEN. The lesson here is that the Ayala Corporation has a clear a template for cashing out the value of their brand. The Ayala Corporation (AC) puts their brand/name into something and that something increases in value and then they cash out at the much-improved valuation. The massive capital gains they reaped from the increase in value are then recycled into another venture to continue perpetuate the cycle. Not all conglomerates can do that, it is unique to Ayala Corporation.

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