MANILA, Philippines – It’s not just billionaire Ricky Razon’s Prime Infrastructure Capital (Prime Infra) which has a “poison pill” or “key man clause” in its deals with the Lopez family’s First Gen Corporation, the Sy family’s BDO Unibank Inc. also has similiar conditions in some of its loans to the Lopez group.

In a disclosure on Friday, April 17, First Gen, still led for now by its CEO Federico “Piki” Lopez, said the country’s biggest commercial bank had issued two standby letters of credit (SBLCs) worth a combined P24.75 billion to support First Gen’s acquisition of a 33% stake in Razon’s Prime Hydropower Energy Inc. (PHEI). (READ: [Vantage Point] What does First Gen’s sale to Razon’s Prime Infra mean?)

PHEI is currently constructing the 600-megawatt (MW) Wawa Pumped Storage Hydro Project in Rizal, and the 1,400-MW Pakil Pumped Storage Hydro Project of Ahunan Power Inc. in Laguna. These projects are expected to be operational by 2030.

“BDO’s issuance of the SBLCs [standby letters of credit] in support of First Gen’s acquisition of a 33% stake in the pumped storage hydro projects, coupled with contractual arrangements on the Change in Management Control, demonstrates the bank’s recognition that the continued active involvement of FRL [Federico Rufino Lopez] in the FPH [First Philippine Holdings Corp.] group is necessary, vital, and indispensable,” First Gen said.

First Philippine Holdings, also led by Piki Lopez as CEO, has First Gen Corporation, Batangas Cogeneration Corporation, First Philippine Electric Corporation, Rockwell Land Corporation, and First Balfour Inc. as its subsidiaries.

“BDO’s commitment terms are clear that maintaining the role of FRL in the FPH group is critical, such that replacing FRL will trigger defaults in the loan agreements of the FPH group. Such a structure not only ensures that the FPH group maintains a unified strategic direction under FRL, but underscores the link between the FPH group’s financial footing and its leadership under FRL,” First Gen said. 

BDO Unibank is part of the Sy family’s SM Group of companies. It is the Philippines’ largest bank in terms of total resources as well as number of automated teller machines nationwide. Its president and CEO is veteran banker Nestor Tan.

BDO Unibank told Rappler it was not commenting on the First Gen press statement for now.

First Gen said the standby letters of credit were “made conditional on covenants required by BDO to ensure leadership continuity across operating segments and subsidiaries of the First Philippine Holdings Corporation (FPH) group of companies.” 

“The leadership continuity covenants provide, among others, that the occurrence of a Change of Management Control is an Event of Default in outstanding loans of the FPH group,” First Gen said. 

First Gen confirmed early this week the “poison pill” provision in the Lopez power generation firm’s natural gas deal with Razon’s Prime Infra, as initially revealed by the Lopez majority.

Piki Lopez’s cousins led by former ABS-CBN CEO Eugenio “Gabby” Lopez III, who call themselves the “Lopez majority,” had described this provision as a “poison pill” designed to prevent Piki from being ousted from First Gen, and allows Razon to buy out First Gen at a big discount if Piki and his designees are removed. (READ: ABS-CBN ups the emotion in latest statement on Lopez cousins’ feud)

Piki was ousted by the Lopez majority from the Lopez family’s private holding firm, Lopez Inc., last February in a 5-2 vote, but a court has since issued an order stopping his removal. 

‘Key man clause’

First Gen prefers to use the term “key man clause” rather than “poison pill” in these change of management control provisions.  

In a press statement on Thursday, April 16, First Gen said the “key man clause… serves as a significant protection mechanism for a business partner.”

It added that this is a “relatively standard provision often in contracts for projects in industries such as energy and infrastructure which involve huge investments.” 

First Gen said the so-called “poison pill” is also known as a “key man clause… because the success of projects under contracts with this provision depends heavily on the competence, relationships or reputation of certain individuals – the key men – whose continued active involvement is deemed essential by the party requesting the clause.”

It reiterated that this “key man clause” was requested not by Piki Lopez but by Razon’s Prime Infra. 

“Prime Infra’s request for inclusion of the CMC (change of management control) provisions shows the level of trust and confidence that Prime Infra has in FRL and his management team,” First Gen said. 

It also said that under Piki Lopez’s leadership, the Lopez power generation firm “has consistently proven profitability with its earnings exceeding P100 billion during the past five years.” 

Prime Infra has described its pumped storage hydro portfolio as “long-duration energy storage capacity” projects of “national significance” that are expected to “provide large‑scale grid balancing, system reliability, and renewable energy integration for the Luzon power system.” 

Pumped storage technology, Prime Infra said, “allows for energy storage by pumping water to an upper reservoir during off-peak hours and releasing it to generate power during peak demand,” and “helps stabilize the grid and manage intermittent renewable energy sources like wind and solar.”

Prime Infra announced last March 12 that it had sealed financing agreements worth P273 billion to support the development of its 2-gigawatt pumped storage portfolio. 

The financing deal involved both local and foreign lenders, namely: 

• Bank of the Philippine Islands 
• BDO Unibank Inc.
• China Banking Corporation
• Land Bank of the Philippines
• Metropolitan Bank & Trust Company
• Philippine National Bank 
• Security Bank Corporation
• Union Bank of the Philippines 
• MUFG Bank
• Mizuho Bank Ltd. 
• Sumitomo Mitsui Banking Corporation

– Rappler.com

For a more in-depth look into the Lopez cousins’ feud, read these exclusive reports by Rappler’s former business editor, Lala Rimando: