[ANALYSIS] At the crosshairs: Alternergy Holdings Corporation

Controversy is probably the word how listed Alternergy Holdings Corporation (trading symbol: ALTER) can be described at the moment since it hogged the news headlines last July 15.    

The Office of the Ombudsman issued an order — dated July 11 but announced on July 15 — for the six-month preventive suspension of the Government Service Insurance System’s (GSIS) president and general manager, Jose Arnulfo “Wick” Veloso, along with six other executives of the government pension fund, over the purchase of P1.45 billion in perpetual preferred shares (PPS) issued by Alternergy in November 2023.

The order of the Ombudsman stated that “it found sufficient grounds to impose a preventive suspension on Veloso and the six other officers, citing strong evidence showing their guilt for grave misconduct, gross neglect of duty, and violation of reasonable office rules and regulations.”

Also, the order sounded grave and alarming: it was “immediately executory” inconsonance with Section 27 (1) of Republic Act 6770, or the Ombudsman Act of 1989.

Thin-slicing the company

Every industry has its own unique dynamics as they have different economics, so much so that you will realize that it’s easier for companies to make money in some industries than in others.  

But due to the vagaries of the times, the scales tip that the luster of other industries disappear unlike the utility sector whose gleam is almost never lost, it becomes a good candidate for investment risk diversification.

Investment risk diversification is a core strategy in portfolio management. Its aim is to reduce the overall risk of an investment portfolio by investing in a variety of assets for smoother and more stable overall returns — like what utilities companies can do, notwithstanding their own non-systemic and systemic risk profile.

In addition, under our present need for more power supply reinforced by the policy path taken by government of embracing the use of green energy, investing in electricity generation via renewable energy companies is a great choice for diversification.  

A new player that fits into this new paradigm buttressed by its unique blend of power technologies, ALTER has quietly aroused investor’s curiosity as an interesting preposition in the hunt for investment targets in the power generation sector.  

ALTER is a renewable energy holding company. It has a portfolio of renewable energy projects consisting of wind, solar, hydro, floating solar, and battery storage power, with long-term power supply offtake agreements.

It was originally incorporated as El Viento Partners Corporation on June 18, 2009, and later on as Alternergy Viento Partners Corporation. On April 24, 2018, it changed into its present corporate name.    

The company listed its shares at the Philippine Stock Exchange (PSE) on March 24, 2023, following a successful initial public offering (IPO) held from March 13 to March 17, 2023. ALTER’s IPO both stood as the first company and first capital-fund-raising event to debut on the stock market for the year. At the offer price of P1.28 per share, a total of P1.62 billion was raised from the IPO. 

To digress, the next slices on ALTER came from the latest company update for clients by Unicapital Securities Incorporated (authored by stock specialist Peter Louise Garnace and approved for circulation by Marleyne Fernandez, nominee and president, facilitated by the president and CEO of the Unicapital Group of Companies, Jimmy Martirez). 

Based on their latest study, below is the summary of the financial performance of ALTER: 

Below is the list and status of ALTER’s power projects.

As noted in the report, 100% of the 86-megawatt (MW) capacity of the currently operating assets are all contracted, guaranteeing visible cash flow and limited exposure from volatile spot market. The company is also in a good position to provide 24/7 supply of energy to offtakers and contestable customers as its diurnal output from solar plants is complemented by wind and hydro.  

More RE plants are coming online and ALTER’s earnings are anticipated to grow further.  This will materialize following the commissioning of over 161 MW of additional capacity. ALTER is on track to exponentially grow its installed capacity by 129% CAGR from 86 MW in FY24 to 451 MW by FY26 (See spreadsheet above). 

It was further observed that almost two years following the initial public offering (IPO), ALTER was able to raise over P20 billion in debt and equity. Of the total funds raised, over P10 billion was earmarked for the 128 MW Tanay Wind Project, P7 billion for the 64 MW Alabat wind project, and P1.3 billion for the 28 MW Solana solar plant. 

Aside from these projects, ALTER is also preparing to raise more capital to fund the rest of its pipeline. In conjunction with its fundraising exercises, ALTER recently consolidated its land assets through Triple Play Land Corporation (3PLCo), which we expect will become ALTER’s REIT vehicle that can provide additional capital in the years ahead.  

The brokerage is confident that ALTER’s track record in securing funding both from debt and equity sources stems from the company’s quality projects and strong relationship with debt and equity financiers, further fortified by the company’s fully contracted capacity and well-balanced mix of technologies, which collectively will contribute not only to financial stability and assurance for debt repayment and predictability of revenues, but less exposure to the volatile spot market.

The PPS issue

As of writing, this is what I can say about the controversial P1.45 billion GSIS investment in ALTER, while we seek more information from the company and other sources. 

On record, the perpetual preferred shares (PPS) amounting to P1.45 billion will be returned to the Government Service Insurance System (GSIS) in full at the end of the investment period. And although non-voting and non-convertible, it has a coupon of 8% per annum and is said to have with a step-up on its 7th anniversary, and are redeemable at a premium to GSIS beginning on the 5th year — details that we are particularly anxious to know.

ALTER has already remitted the first PPS coupon totaling P118 million to GSIS in December 2024. GSIS will realize a 56% return on its investment in the PPS, totaling P826 million over 7 years. As of the present, ALTER has not failed to pay its obligations. 

Conclusion and market call

ALTER continues to trade below its IPO offer price. Right upon listing, it sunk below one peso apiece. However, in the last one year or so, it has been trading above one peso per share. This can be attributed to the fact that ALTER is on schedule with its power projects. Also, ALTER’s  management team is composed of the country’s movers in the energy sector. Most importantly, ALTER’s proponents have unsullied reputation.

With the forgoing company update, the market call for ALTER is ACCUMULATE. – Rappler.com  

(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.   You may reach the writer at densomera@yahoo.com)  

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