AES to Divest Minority Stake in the Philippines Coal Plant, Masinloc - Analyst Blog

The AES Corp. AES has struck a deal under which it intends to sell a minority stake in the Masinloc power plant as well as development projects in the Philippines to Electricity Generating Public Company (EGCO), a Thailand-based independent power producer. The transaction is valued at $453 million.

The assets earmarked for sale comprise a 45% stake in the 630 megawatt MW Masinloc coal-fired power plant that has been in operation since 1998. The company will also eschew other development projects like the expansion of the existing Masinloc facility and approximately 60 MW of potential energy storage projects in advanced development.

Post transaction, AES will retain a 51% operating interest in Masinloc, while EGCO will hold 41% and the International Finance Corporation (IFC) the balance 8%. The transaction is expected to close in the third quarter of 2014. For AES Corp, the partial stake sale will be neutral to its 2014 earnings and beyond.

Though economic growth in the Philippines fell below 6% in the first quarter of 2014 due to natural disasters, economic activity is expected to pick up in the rest of the year. Demand for energy will continue to see an uptrend in these developing economies. AES Corp. and EGCO Group hope to meet this demand, utilizing the Masinloc platform, to provide reliable and affordable energy.

AES Corp. has lately been divesting assets to streamline its portfolio and concentrate on its core operations. Recently, AES Corp. announced that it has entered into a deal with SunEdison Inc. SUNE to divest 50% of its interest in the 336 MW solar photovoltaic (PV) projects owned by Silver Ridge Power, LLC. AES Corp.'s decision to sell half of its interest in the solar project is strategic, as solar holds a nominal share in the company's overall generation mix and will not hurt its renewable generation portfolio. Presently, it is focused more on expanding its wind and hydroelectric assets instead.

Going forward, bullish power demand in the markets of Chile, Central America and Asia is the key factor behind the company's increased utility-scale investments in these regions. The company has been systematically exiting non-competitive markets to focus on high-growth assets. It has a sizeable construction backlog of 4,100 MW, comprising a 1,320 MW coal plant in India and the 531 MW hydroelectric project in Chile.

Currently, the company carries a Zacks Rank #3 (Hold). Better-ranked utility players worth considering include Zacks Ranked #1 (Strong Buy) Black Hills Corporation BKH and NRG Energy, Inc. NRG.