AEV learns from Transport/2GO experience, cashes out portion of Power while value is still high

In 2010 Aboitiz Equity Ventures (AEV) sold Aboitiz Transport System operating under the 2GO brand to Negros Navigation Co. (NENACO) for 3.5 Billion Pesos. AEV incurred a loss of 74.6 Million Pesos on the sale of 2GO. The loss may have been small, but AEV made an impairment charge before that of 2.1 Billion Pesos.

AEV sold Aboitiz Transport/2GO when the industry was at bottom. Revenue from sea vessel passengers were being eaten by the airlines at that time depriving 2G0 of a key revenue. Transport and logistics were not yet then apples to the eyes of investors. Thus, AEV suffered significant losses on the divestment of 2GO.

The transport business holds a huge sentimental value to the Aboitizes considering that it was one of their original businesses and that they have been in that business for 100 years. But then they saw that they can reinvest the proceeds in the fast-growing power business.

The 2GO experience gave the Aboitiz Group valuable business lesson: cash out while the value is at the top not when the value is gone.

ESG investing made investors abhor coal. Institutions and retail traders have been avoiding investments in companies with major coal power exposure. Aboitiz Power is the biggest coal power plant operator in the country. Aboitiz Power even gobbled up the coal plant exposures of the Ayala’s when the Ayala’s was divesting from coal to turn renewables. There is a risk the coal plants will become stranded as the world moves faster towards net-zero carbon.

Applying the lesson from the 2GO experience, rather than wait for the value of Aboitiz Power (AP) to erode over time AEV is cashing out almost a third of its holdings in Aboitiz Power at top valuation. AEV made a wise move to harvest or realize the value of its power investments while it is still holding. The sale gives AEV a massive capital gain and a huge capital for opportunities that this pandemic may present.

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