Alinta Energy Makes It Two From Two
Alinta Energy Makes It Two From Two
The restructuring proposal announced this morning for Alinta Energy Group (AEJ) makes it two wins out of two for the former Babcock satellites I mentioned in Shhh … It Used To Be Called Babcock.
Security holders are going to be given 10 cents cash and will keep an interest in the Redbank Power Station. As mentioned in that post, Alinta has about $40m cash held outside the lending group. That’s about 5 cents of the 10 cent payout and the rest will be paid by new investors (mostly the old lending consortium) in exchange for the rest of Alinta’s assets.
It’s a good return on our 5 cent purchase price and, while the directors think equity in Redbank is worthless and are probably right, it’s an option that could be worth something in a more optimistic market.
The securities have traded as low as 8.6 cents this morning, which I think is an excellent arbitrage opportunity for anyone with cash to spare. There are a lot of approvals, sign-offs and independent experts’ reports to be finalised but I can’t see anyone knocking the deal back, especially given GPG has already given in principle support with regards its 19.9%. The 16% potential return on offer is not to be sniffed at.
The one remaining former Babcock fund is Infigen Energy (formerly Babcock & Brown Wind). With $174m of unencumbered cash and a market capitalisation of $570m, you’re only paying $400m for the equity in the wind farms, which equates to an enterprise value of about $1.5bn (total production is expected to be between 4.3 and 4.9 GWh per annum).
If anyone has expertise in renewable energy legislation here or in the US, can you send me an email? I'm trying to reach an informed conclusion about the likely future price of renewable energy certificates.
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Thanks for the update Steve. I had been working on gaining a better understanding of AEJ since you mentioned it in your blog last week, but hadn't covered enough ground before it going into a trading halt.
Broadly speaking, is my understanding of the recent developments today correct - AEJ shareholders will receive a 10 cent cash payment in return for the assets. They will then be left with (likely worthless) shares with an ownership interest in Redbank, but they will continue to remain listed?
On a slightly related issue - have you heard anything in relation to the asset-option BEPPA security holders were left with during the B&B Infrastructure/Prime restructure?
That's correct, but I doubt they'll stay listed for long. It makes more sense to wind the whole thing up in the not-too-distant future.
There's a column in today's Street Talk about the BEPPA assets. Apparently there's been an information memorandum released with indicative offers due October 18 and binding offers due 2 November.
According to my calculations, Iberdrola Renovables (which is also basically a listed windfarm) has a theoretical maximum output of 98GWh, and is currently trading on a AUD EV of $16.7bn.
This is about half the power output to EV ratio of the old BBW.
Obviously, one needs to subtract from this the fact that wind turbines can never be expected to run at 100% of capacity, 100% of the time over the course of a year, so the comparison is vastly overstated.
However, partially offsetting this, one needs to add the fact that the Iberdrola valuation includes value attributed to contract wins that are not presently contributing to installed generation capacity.
My calcs were done in the space of a few minutes, and as always, there is a lot more work involved, but IFN doesn't look jaw-droppingly cheap right now.
The IFN numbers assume an average capacity factor of 34%. The other big swing factor is the regulatory environment. The price IFN gets on its German electricity production is almost double what it gets in Australia.
G'Day Steve,
I had BEPPA that got restructured into Prime infrastructure but didn't end up with any options on other assets. Should have I? I don't understand what you mean
Regards
John
If you owned BEPPA when they converted you own the options over these assets (perhaps better described as a right to any excess proceeds). My understanding is that they'll just send you a cheque if there is anything to send.
It's a buyer's market for these assets so I wouldn't get your hopes up too high.
How long is the arbitrage oportunity open? In other words, up until which data can I buy shares in AEJ and still be eligible for the 10 cents?
You've got a long while yet. The deal isn't even confirmed- then it will need to be voted on by securityholders. We should know more in the next few weeks or so.
If you had to guess, when do you think the 10 cents will be paid? I don't want my capital locked up when the QRN float launches.
I wouldn't be expecting payment to occur within 3 months on this transaction
Steve I'm fairly sure I have some research in this area and about IFN which might be of some use. I will send you an email if I can locate it.
Steve do you make anything from the press articles about an equity value being attributed to Redbank, or are you aware of any other details? Surprisingly AEJ is still trading between 8.6-8.8 and the addition of even a few cents for Redbank becomes quite an enticing prospect
The positive is that the Redbank debt isn't due to be repaid till 2017. Negatives are operational issues and the current market for assets like this. Zero is the most likely outcome, but there is a low probability chance of a better outcome and you're right, it doesn't take much to make a decent different from the current purchase price.
[...] should have gone to Alinta Energy’s AGM instead. I outlined the arbitrage on offer here in Alinta Energy Makes It Two From Two. The first interesting snippet to come from the AGM, according to the transcript, is that the [...]
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