Wind fund partners go for independence -- Break away action by Babcock & Brown wind unit

No sooner was the ink dry on Babcock & Brown Wind Partners' (BBW) sale of its wind power assets in Portugal than the company announced it was proposing to get out from under the control of its parent and start over as an independently managed company under a new name.

Repeating once again that its share price -- down by about half this year -- was undervalued when measured against its wind farm asset holdings, BBW revealed that it has entered talks with embattled investment company Babcock & Brown (B&B) to "fully internalise the management function" to enhance value for shareholders. It also said it would acquire assets from B&B, but did not elaborate on what these might be.

"The proposal involves a total cash consideration to [B&B], which BBW believes represents fair value," said BBW late last month. B&B has agreed to enter discussions, and UBS and Mallesons Stephen Jaques will act on behalf of BBW management. Shareholders will be asked to vote on a new name soon. BBW has also bought back some 28.8 million shares from the market, representing about 3.3% of total equity, and hopes to eventually reacquire 30%.

BBW said that step was partly made possible by the recent EUR 1.2 billion sale, together with B&B, of their Portuguese 50-50 joint venture, Enersis, to a consortium of Portuguese investors headed by private equity fund Magnum Capital in what Magnum calls the largest private equity investment ever in the wind sector. Enersis controls a portfolio of 515 MW of wind assets in operation and 156 MW under construction, representing a little less than 20% of the installed capacity in Portugal.

Despite the global financial crisis, the price paid for the portfolio was in line with the recent sale of its Spanish wind farm to a local construction conglomerate for about EUR 1.96 million a megawatt (Windpower Monthly, September 2008) and the sale earlier this year by Spanish wind power operator Urvasco Energia, a division of property group Urvasco, of all its wind assets, including 150 MW online, to German utility RWE Innogy's Spanish division for about EUR 1.7 million a megawatt.

BBW's Miles George expressed confidence looking forward based on current performance. In the first four months of the company's 2009 fiscal year to June, capacity factors across its global fleet were stable, averaging 24% across its portfolio, and electricity prices were 21% higher during the period. The sale of the high-earning Spanish and Portuguese assets, however, has reduced the company's total holdings to 2260 MW. That will be boosted soon as 180 MW of wind farms come on line in France (10 MW), Germany (38 MW) and Australia (132 MW by mid 2009).

Debt burden

B&B, listed on the Australian stock exchange and until this year the fifth largest wind plant owner globally, is burdened by debt and reeling under the global credit crisis. Selling off lucrative wind assets has been seen by commentators as a necessity forced upon it. Going forward, however, BBW says its "financing arrangements are not impacted by Babcock & Brown's financial situation." According to George, "BBW has no re-financing requirements and all existing [capital expenditure] requirements are funded with committed bank facilities and cash."

BBW and B&B are still in talks to divest 789 MW of jointly held wind assets in France, Greece and Germany -- though if BBW succeeds in breaking away from B&B, further asset sales may come into doubt.

For its part, Magnum Capital seems to have made out well in the Portuguese deal. Enersis, which will change its name to Iberwind, targets revenues of EUR 120 million in 2008 and earnings before interest taxes depreciation and amortisation exceeding EUR 100 million.

Power from the wind farms is sold under 15-year fixed-price contracts guaranteed by law. Magnum outbid an array of international competitors, including France's Suez and Spain's Iberdrola, and financed 65% of the acquisition with its own resources. Institutional investors Espírito Santo Capital, ECS Capital and the Multipower Group also joined in.