October 22, 2014

EDC obtains US$315m loan for wind project, wins new service contracts

Energy Development Corp (EDC) disclosed today that it signed a US$315m long-term loan with various foreign and local banks to finance the construction of its 150-MW Burgos wind project. The loan, which consists of US dollar and Philippine peso tranches, will mature in 15 years. Separately, the company disclosed last week that it received seven new service contracts (one solar and six wind projects) from the Department of Energy (DOE). Three of the potential projects are located in Sorsogon, two in Iloilo, one in Ilocos Norte and another in Negros Occidental.

Our take: Construction work on the Burgos wind project actually started last year and is already nearing completion. Last month, the company reportedly said that testing and commissioning of the Burgos wind project could begin within the year (please see 29 Sept Daily Wealth Take). EDC originally planned to have the first 87-MW unit (Phase 1) online by 4Q14 and the remaining 63-MW unit (Phase 2) by 1Q15. But with both phases of the project now ahead of schedule, it is possible the unit could start commissioning towards the end of the year. The project is reportedly more than 90% complete.

Funding for the project initially came from the P7b seven- and ten-year fixed-rate bond acquired in May 2013, the US$80m five-year loan obtained in March 2013 and a US$90m bridge loan secured in June 2014. We gathered from EDC that part of the proceeds will be used to pay-off the US$90m bridge loan. The remaining debts will be retained to finance future projects. Among these include EDC’s overseas investments (Chile, Peru and Indonesia) and several local expansion projects such as BacMan 3, Mindanao 3 and Botong-Rongas.

 The company currently holds several service contracts with the DOE, each granting EDC exclusive rights to explore, develop and utilize the corresponding resources in the relevant contract area. Although actual development for most of these service areas are still a long way off and may take several years before the projects come to fruition, some service areas have actually undergone several years of pre-development. There are two stages in a renewable energy (RE) service contract, pre-development stage and the commercial/development stage. The awarding of the RE contract to EDC essentially grants the company the exclusive right to do pre-development work in the specific service areas to determine the sites' commercial feasibility. Once the project is deemed commercially feasible, the next step is to apply for the conversion of the RE service contract (prior to its expiration) from pre-development stage to development/commercial stage. Once a Certificate of Confirmation of Commercially is issued by the DOE, actual construction can then begin. - WealthSec