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Wind untouched by Dexia's difficulties

EUROPE: Exposure to the Eurozone crisis - and in particular Greek debts - has forced Franco-Belgian bank and major offshore wind backer Dexia to seek government help.

But its project-finance division could continue to prosper despite the problems.

The bank is one of the top project-finance lenders to the European offshore wind sector, with involvement in around 1.7GW of projects. However, it is being dismantled after its shares were suspended due to the debt exposure. The firm holds EUR12.2 billion of sovereign debt from Greece, Italy, Ireland, Portugal and Spain.

In October, the bank received EUR90 billion of state guarantees from France, Belgium and Luxembourg and its Belgian arm was nationalised for EUR4 billion. Its French public-financing arm, Dexia Municipal Agency, is being part-nationalised and Dexia Asset Management and a variety of subsidiaries are being put up for sale.

However, Dexia is expected to retain and grow its project-finance business, which specialises in lending to public-private partnerships (PPP) and renewable-energy projects, in particular offshore wind.

Ongoing talks

One Paris-based banker working with Dexia said the bank was continuing to be involved in financing negotiations. "If anything this restructure is likely to help their project-finance business," he said. "It is a strong performer in their portfolio and they have already pared it down to their areas of expertise in PPP and renewables. There's bound to be turbulence in the short term, but financing infrastructure projects is a long-term business and strategically I think the bank would look to return to growth through such sectors."

He added that while the bank has been involved in many of the key offshore deals - both advising and lending - its actual debt commitments, particularly on recent deals, have been relatively small (see chart).

Dexia last year successfully refinanced the EUR111 million 15-year loan it made in 2007 to the first 30MW phase of C-Power's Thornton Bank wind farm in the UK. It did this through the EUR1.2 billion financing of the project's second and third phases, which totalled 295MW. Dexia's share of the project's overall EUR913 million long-term debt facilities now stands at just EUR34.25 million.

With relatively small debt commitments, which - despite being for 15 years - are seemingly easy to exit early from, offshore wind is likely to be seen as a relatively safe option by those running the bank.

However, other European banks previously nationalised have gone on to sell their project-finance loan book. Last year the UK's nationalised Royal Bank of Scotland sold a £3.8 billion (EUR4.4 billion) portfolio of infrastructure assets to Japan's Mitsubishi UFJ Financial Group, and Bank of Ireland is in the process of selling its project-finance loan book, which comprises debt commitments totalling EUR3.3 billion.

While these transactions are unlikely to harm those projects already loaned to, they have marked those banks' exit from lending to the sector. European offshore wind, with its annual EUR17.1 billion financing requirement up to 2030, could do without losing one of its most active lenders.

Another Paris-based banker said that loan-book sales by Dexia should be considered a possibility further down the line. "Once the dust from the restructuring has settled," he said.

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