By Ria Fernandez, News5
(May 30, 2020) – The Philippines has announced plans to increase its stake in a major natural gas project in the western part of the country, a strategic move to drill in about $56 million to acquire some shares from an upstart businessman close to the president.
But there were speculations the government was actually helping Dennis Uy of Udenna Corporation who is facing maturing loans from commercial lenders.
Uy was listed in the 2019 Forbes magazine as one of the Philippines’ 50 richest men with a net worth of $660 million.
Analysts say the Department of Energy (DOE) and Udenna Corporation could be having a potential sweetheart deal as the 46-year-old businessman is facing some tough time after an acquisition binge.
Former congressman Neri Colmenares, head of the progressive Bayan Muna party-list, has criticized the government’s move to acquire 10 percent of Udenna’s 45 percent shares in the profitable Malampaya gas field, the country’s largest energy project in northwestern Palawan.
“It is very unacceptable and very questionable,” Colmenares told News5 in a Zoom interview, raising suspicion on the Department of Energy’s plan to acquire Udenna’s shares at a time when the country is facing a serious financial crisis due to the coronavirus pandemic.
He has also questioned the government’s planned investment in a gas project when its reserves are about to be exhausted by 2024.
Colmenares has expressed his views on the possible deal after a Philippine Star business columnist, Boo Chanco, wrote about the DOE’s strategic move, raising doubts on the government’s real motive behind the buyout.
“It is obviously to help a crony who could use some cash these days,” Chanco wrote in his column. He also asked whether Cusi was returning a favor after he sold his business to Uy.
But Energy Secretary Alfonso Cusi denied the speculations the government was helping the president’s close friend and campaign contributor by putting fresh funds.
“That’s not true,” Cusi told News5 in a text message. “It was not concluded when PNOC-EC proposed to acquire their proportionate share because Udenna didn’t want to sell.”
Udenna neither confirmed nor denied the reports. It has not returned calls made by News5. Uy and his officials are tight-lipped about the potential deal.
In December, Cusi had told reporters the government was interested in getting additional shares, defending the acquisition as part of the Philippine National Oil Company-Exploration Corporation’s (PNOC-EC) medium-term plan to increase its Malampaya shares.
He said the PNOC-EC was interested in raising its stakes to 14.5 percent by acquiring 10 percent of Udenna’s 45 percent equity in the gas project. He said it was a done deal.
PNOC-EC already owned 10 percent of Malampaya. The remaining 90 percent were shared equally by Shell Philippines Exploration B.V. and Chevron Malampaya LLC.
Uy’s Udenna has recently acquired all of Chevron’s shares for $565 million stakes in the gas project. The deal was completed only in March 2020, according to a statement from Udenna.
But, in a more recent statement, Cusi said the government has changed its mind because of the public health crisis.
“The company had already expressed this interest to its joint venture partners. However, further discussions could not progress due to the COVID-19 pandemic,” he added.
In his latest statement to News5, Cusi said there was no deal because Udenna was not selling its 10 percent share to PNOC-EC.
Japeth Tantiangco, a senior research analyst at Philstocks Financial, said the Malampaya gas fields are in better hands under the private sector and the government should not meddle in the project.
“This is what free marketers really don’t want for the government to be involved,” Tantiangco told News5. “Whether it’s viable or not, the Malampaya, the free market perspective, it will be best to leave this one in the hands of the private sector.”
He said it is not fair for government to invest in the gas project.
“It’s part of reality, there are some businesses that enjoy political capital,” he said. “And especially helping a business because it creates imbalances within the business sector and the economy in general. We’re talking about, when the government invests, we’re talking about not the money of the government itself but the tax of the general public.”
Tantiangco said Udenna has already stretched itself too much in the last four years since 2016, gobbling up about 50 companies from the power sector, logistics, and food business in a frenzied acquisition splurge.
Many of Uy’s publicly-listed companies are not performing well because some were affected by the health crisis or were just starting, he added.
“If you’re going to look at its financial statement in 2017, that’s the only thing available for me right now, its total liabilities to total assets, that’s about 70. 7 percent,” he said.
“This implies that 70.7 percent of, we’re talking about Udenna Corporation here the parent company, 70.7 percent of the company’s assets is funded by liabilities, funded by debt, or it’s just borrowed money.”
Tantiangco said there is real danger Uy’s business may fail because of his heavy borrowings when banks started collecting repayments.
“The downside here is that when you’re heavily leveraged, you are highly exposed to risk, risk of getting bankrupt. The default risk, the inability to pay your debt,” he added.
That could be the reason why Udenna was reportedly selling its 10 percent stake in Malampaya to PNOC-EC.
Another analyst, Astro del Castillo agreed the timing of the government’s planned acquisition created a lot of doubt even if he believed the PNOC-EC’s move was sound because the gas project was very viable investments.
“Somehow the acquisition leaves a bad taste in the mouth,” del Castillo said. “They should have thought that, made such offer earlier or maybe direct it to Chevron or other options to make the acquisition cheaper. But we don’t really know the story or background behind.”
The $4.5 billion Malampaya gas field is a deep-water gas-condensate reservoir, known as service contract 38, about 65 kms. off the main island of Palawan.
It was discovered in 1989 but the gas first flowed in 2001, supplying clean energy to provide nearly 40 percent of the power requirement of main Luzon grid.
But the gas supply was expected to be exhausted by mid-2020 as the Philippines scrambles to develop other oil-and-gas fields in the country.
Uy has other energy projects in the pipeline, including a partnership with China’s state-owned oil-and-gas company to build a LNG hub in Palawan. (MM)
