July 20, 2015

Partial award in favor of FPH unit amended by arbitration tribunal

Further to previous disclosures regarding First Philippines Holdings Corp (FPH) arbitration case against SunPower Manufacturing Ltd (SPML), FPH in a disclosure yesterday said that a second partial award has been rendered by the International Chamber of Commerce (ICC) in favor of FPH subsidiaries First Philippine Electric Corp (First Philec) and First Philec Solar Corp (FPSC) against SPML. FPSC is a JV established to slice silicone solar wafers for SPML and is owned by First Philec (74.54%), SPML (14.49%) and a number of individual shareholders (10.97%).

The previous partial award dated 28 Jan 2015 found SPML to be in breach of its obligations and was ordered to (1) purchase First Philec’s shares in FPSC for US$30.3m and (2) within 14 days of the transfer of the shares from First Philec to SPML, pay FPSC the net sum of US$25.24m, representing compensation for wafers not taken by SPML and for unpaid silicon solar wafering services under the supply agreement.

Subsequent to the first partial award, the individual shareholders advised SMPL that they were willing to accept US$7.157m for their 10.97% shareholding in FPSC. For the second partial award, the ICC found it appropriate to reduce the purchase price to be paid by SPML to First Philec to US$23.2m from US$30.3m. The reduction of US$7.1m being approximately the amount that the individual shareholders have committed to accepting from SPML for their 10.97% stake. The required US$25.24m payment for the wafers remains in effect and binding.

The arbitral tribunal will subsequently render a final award dealing with other minor issues and liabilities, including the matter of which party or parties will be responsible for the costs of the arbitration.

Our take: Despite the reduction, the overall impact to FPH’s cash position and consequently its NAV should remain positive. Using the market prices of its publicly-listed investee companies namely: First Gen Corp (FGEN), Manila Electric Co (MER), and Rockwell Land Corp (ROCK), as well as the book value of its cash and debts, and investments in FGEN preferred shares, we estimate FPH’s NAV at P149/sh. Based on yesterday’s closing price of P79.70/sh, FPH is trading at a 47% discount to its NAV. – WealthSec