Dennis Uy firm has ‘negative working capital’ for Malampaya field

By Myrna M. Velasco – September 28, 2021, 4:15 PM
from Manila Bulletin

UC Malampaya Philippines Ptd. Ltd. (UC MPPL), a company of Davao businessman Dennis Uy that bought the 45-percent shareholdings of American energy giant Chevron Corporation in the gas field project, was found to have ‘negative working capital’ that it could use to comply its work program commitment for the continuous operation of the Malampaya field.

Dennis A. Uy

In a Senate investigation on Tuesday, Sept. 28, Senate Committee on Energy Chairman Sherwin T. Gatachalin showed a document submitted by the Department of Energy (DOE) that the available working capital of Uy’s UC MPPL was at negative $137.156 million. Its bank balance was just $39.170 million.

The working capital requirement of the transferee-company of the Chevron shares, which in this case is UC MPPL, was placed at $64 million in 2020, and $73 million for 2021.

In Chevron’s divestment of its 45-percent stake in Malampaya, it was qualified that the buyer firm or the transferee-company is UC MPPL, a subsidiary firm of Uy’s Udenna Corporation; while the company of Chevron in the Malampaya consortium that sold the shareholdings is UC38 LLC.

In the DOE-furnished documents, Gatchalian indicated that it was UC38 LLC or the Chevron company in the consortium that has positive working capital of US$177.421 million; and its bank balance was also at heftier US$72.283 million.

On that premise then, the lawmaker questioned the DoE how come it approved the sale of Chevron’s interest to the Uy-led firm UC MPPL if its working capital was “negative” at evaluation phase – and the company has not also provided documents to satisfactorily show that it has sufficient funding for the venture it is taking in the Malampaya project.

Director Araceli S. Soluta, head of the financial services of the DOE, admitted that the agency has not evaluated the financial standing of UC MPPL as the buyer or transferee-firm when the government approved the sale of the Malampaya stake of the American company.

“Honestly sir, we no longer evaluated that (UC MPPL company of Dennis Uy) because it is not a member of the Malampaya consortium. That’s why we just focused our evaluation on UC38 LLC,” the DoE official stressed.

But Gatchalian reminded DOE that in the Udenna-Chevron transaction, it was UC MPPL that is the transferee company, hence, that should have been the entity scrutinized by the DOE on its financial evaluation of the Malampaya shares’ divestment of Chevron.

Soluta responded that the DOE “opted to just evaluate UC 38 LLC because the sale was already consummated”, which was also the basis of the department’s approval because that company (UC38 LLC) has positive working capital.

Gatchalian, however, reproached the DOE on its apparent attempt to skew the financial evaluation process of the transaction by opting to look at the financial standing of UC38 LLC even if it is not the transferee-company as already established in earlier part of the hearings. In the solon’s view, that could not have been the basis of DOE’s financial evaluation of the Chevron-Udenna deal.

“We established from the beginning that the transferee is UC MPPL and the transferee is the one that should be evaluated under DC (Department Circular) No. 2007-04-0003,” the senator noted.

Senator Nancy Binay similarly quizzed DOE how come it greenlighted the Udenna firm’s acquisition of Malampaya despite the fact that the Uy-led company just submitted unaudited financial statements and draft work program – which should not have been acceptable, because prudence is observed even in the merger and acquisition (M&A) deals of smaller firms.

Gatchalian supported Binay’s observation. He further asked DoE “why did you recommend and why did you conclude that it (UC MPPL) is capable if there is no work program approved (for Malampaya) yet?”

The sale of the 45% Chevron stake was the first part of Udenna’s acquisition in Malampaya and that transaction that was closed in March 2020 was valued at $565 million, while the second part was the $460 million purchase of Shell’s interest that is due to be finalized by the end of this year.