Chemrez Technologies gets SEC nod on plans for corporate changes

BY RUBY ANNE M. RUBIO, Reporter/BusinessWorld The country’s leading biofuel and chemical firm Chemrez Technologies, Inc. has secured approval from the Securities and Exchange Commission (SEC) to amend its articles of incorporation reflecting the increase in authorized capital stock to P2 billion from P1.01 billion and change in corporate name from powder coatings firm Corro-Coat, Inc. as it enters into the biofuel, resins and specialty chemicals businesses. In a letter to the Philippine Stock Exchange, chief finance officer Francis A. Caluag said Chemrez Technologies has applied for the offering of 306.12 million to 384.62 million new common shares at a price range of P3.90 to P4.90 per share. "The offer shares will result in additional public ownership ranging from 22.46% to 26.68%. It is the company’s intention to file very shortly an application for listing with the exchange which shall cover both the swap shares and the offer shares as well as to enlist member brokers’ participation in the offer," he wrote. Chemrez Technologies is looking at raising P1.5 billion in new capital through a general offering. Out of the increase in authorized capital stock, 462.23 million shares will be issued to the shareholders of affiliate Chemrez, Inc. which is being acquired via a share swap as a move to venture into biofuels. The swap shares represent 43.73% of the company. Net proceeds of P1.43 billion will be used to retire the Chemrez Technologies prospective obligations to D&L Industries, amounting to P667 million, to be incurred in connection with the acquisition of the biodiesel project, to fully settle some bank loans and to partially finance the working capital requirements. Chemrez Technologies also acquired, at cost, the biodiesel plant designed, developed, constructed and financed by D&L and Chemrez. Total project costs were estimated at P810 million, of which P143 million was incurred by Chemrez for site development and certain plant, machinery and equipment. The balance of P667 million, representing the value of other equipment and machinery, research and development, process design and detailed engineering, erection, and project management costs was incurred and financed by D&L. Upon completion and turnover of the biodiesel project, Chemrez Technologies will issue a promissory note to D&L in the amount of P667 million representing full compensation for materials and services related to the biodiesel project. It intends to consolidate at some future date the biodiesel-related assets, valued at P143 million which was financed by and carried in the balance sheet of Chemrez. In a research note, Citisec-Online.com analyst Carly Sy said earlier Chemrez Technologies is on its way to become a biodiesel powerhouse as its management expects BioActiv to constitute 50% of revenue and 66% of gross profits soon after its integration. "Biodiesel’s most significant benefit is that it reduces visible smoke and harmful gases released by diesel cars. In light of its environmental benefits, Congress may pass the Biofuels Bill, which would mandate the blending of 1% biodiesel with 99% of petro-diesel. The passing of the Biofuels Bill could cause demand for biodiesel to reach 40 million liters annually. The volatility of oil prices does not impact the cost of production of BioActiv because it does not use crude oil or its derivatives as a raw material. Instead, it uses coconut as a feedstock," he added. Following the share-swap transaction with biodiesel maker Chemrez, Corro-Coat will be transformed into a multi-product and multi-market company with substantially higher sales and significantly larger resources. "The company will also enter into the relatively new and potentially lucrative domestic market for renewable fuels," he added. Coco-biodiesel, via a 1% blend, is seen to displace 70,000 liters of the total 70 million liters of diesel the country consumes in a year. This will generate savings of about P60 million a year. Engaged in the manufacturing and marketing of synthetic resins and specialty chemicals, Chemrez serves a wide variety of industries and markets which include the paint and coatings, inks, fiber-reinforced plastics and adhesives industries. A fuel enhancer that can be used on any diesel engine, BioActiv is made from a renewable resource having similar carbon chain structure as high-quality petroleum diesel. Mr. Sy said the biodiesel arm will be the main growth driver as the company expects it to eventually constitute 50% of revenues and 66% of gross profits. "The biodiesel plant to be acquired is a very versatile manufacturing plant," he added.