First Gen Delayed Disclosure of P23.5-Billion Penalty Clause in Energy Deal

First Gen Corporation did not disclose a P23.5-billion penalty clause in a P75-billion energy deal until 60 days after the initial announcement, according to regulatory filings reviewed by Rappler. The clause became public during a family dispute among Lopez shareholders.

The deal, announced on February 13, involves partnerships with Prime Infrastructure Capital for two pumped-storage hydropower projects in Rizal and Laguna provinces. The projects include a 600-megawatt facility in Wawa and a 1,400-megawatt facility in Ahunan.

First Gen filed a disclosure with the Philippine Stock Exchange on the same day, covering the deal, an annual stockholders' meeting, an employee stock purchase plan, and a vice-presidential appointment.

The undisclosed clause is a Change of Management Control provision that allows Prime Infrastructure to force First Gen to sell back its stake at a 25% discount if Federico 'Piki' Lopez or his designees are removed from six specific positions. This penalty amounts to approximately P23.5 billion, including P15.5 billion for the hydro projects and P8 billion for gas plants previously sold to Prime Infrastructure.

The clause was present in the Heads of Terms signed on February 13 but omitted from the initial filing. On March 6, the parties signed Definitive Agreements, reducing the stake from 40% to 33% and the total commitment to P61.875 billion. The penalty was adjusted from a 75% discount formula to a fixed 25% discount.

First Gen filed an updated disclosure on March 9, which also omitted the clause.

and Disclosure Between February

27 and March 11, the board of Lopez Inc. voted 5-2 to remove Lopez as president, leading to a court-issued temporary restraining order that kept him in position. The Definitive Agreements were signed on March 6, during this period. The clause was finally disclosed in amended filings 76 days after the initial signing, on the same day as the information statement for the May 28 annual stockholders' meeting.

During the 76-day period, First Gen shares traded on the Philippine Stock Exchange without investors knowing about the clause. The amendments inserted the clause language without explaining the omission.

Background on the Deal Structure Large commercial deals typically involve a Heads of Terms agreement followed by Definitive Agreements. The February 13 Heads of Terms included the penalty as a formula, while the March 6 agreements quantified it. First Gen stated that Prime Infrastructure requested the provisions, but did not address the change in discount percentage or its financial impact.