Aggressive financing structure -- Acciona's CESA acquisition

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Spanish industrial group Acciona was late last month closing its acquisition of a 93.1% majority stake in Spanish wind power developer Corporación Eólica SA (CESA). The transaction has an enterprise value of EUR 1.37 billion when EUR 397 million of existing CESA debt is added to the EUR 973 million Acciona is paying Gamesa founder Juan Luis Arregui and venture capital funds Mercapital and Bridgepoint for their combined stake.

CESA's operational portfolio totals 536 MW and the addition of its 496 MW in Spain to Acciona's existing operational capacity cements the buyer as the second-largest wind power generator in Spain, just over a year after it completed its EUR 800 million acquisition of Energía Hidroeléctrica de Navarra (EHN), its first major leap into the wind business. Upon close of the CESA deal, Acciona will control 1638 MW, or 18% of installed Spanish wind capacity compared to market leader Iberdrola's 32%. CESA also controls 15 MW of capacity in Italy and 25 MW in Greece. The deal marks Acciona's first investment in these markets.

The acquisition is being financed by bank debt, thought to be on a non-recourse basis--under which the loan facilities are not guaranteed by Acciona but, much like a project financing, secured instead on CESA's assets and its future cash flows from existing and in-development operations. It is not yet clear which banks are involved, but while such non-recourse facilities have been a feature of Spanish wind business acquisitions for some years, the likely size of this deal would put it in a league of its own.

Such an aggressive structure will be possible only due to the assured continuation of CESA's growth, which has seen an annual increase in capacity averaging out at 31% since the company controlled 103 MW in 1999. Operational capacity is forecast to grow to 674 MW by the end of this year and there is another 878 MW to be built by 2009, including 315 MW outside of Spain with Portugal and Hungary as new markets. The development pipeline beyond this adds another 3400 MW, with 1350 MW of this outside Spain.

CESA net income should grow from an estimated EUR 12 million this year to EUR 22 million in 2007 and EUR 39 million in 2008. Acciona estimates this should add 5.3% to its cash earnings per share this year, 8.2% in 2007 and 10.9% in 2008. Acciona says CESA is a "unique wind power acquisition opportunity" on which it gained a first mover advantage to pre-empt a competitive auction for the asset.

Offshore backdoor

The acquisition of CESA brings with it a 10 MW near-shore wind station of five Gamesa 2 MW turbines, inaugurated last month at the Port of Bilbao in northern Spain. The project provides Acciona with a backdoor route to its goal of becoming Spain's first offshore wind power operator.

While Acciona has been struggling to move processing forward on its six-year-old, 1000 MW offshore proposal for Cape Trafalgar (Windpower Monthly, July 2005), CESA developed and completed the Port of Bilbao facility--Spain's closest brush yet with offshore wind plant operation. The turbines are built along a quay jutting two kilometres into the Bay of Biscay. "The turbine towers are often hit by waves and the machines are steeped in the humid salt-air environment affecting offshore plants," says CESA's Miguel Eguizábal. Turbine components are either made of corrosion resistant materials or have been treated with anticorrosion paint.

The plant, which cost EUR 11 million to build, now stands as a point of reference for the 6500 MW backlog of offshore projects under development in Spain. Acciona expects good returns on the Bilbao investment. Annual production is forecast at 23,500 MWh, presuming the facility operates for the equivalent of 2350 hours a year at full power.

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