The investment is to be fuelled by the biggest stock market flotation by a Spanish company so far this decade -- and the world's biggest ever for a renewables company. Independently listed renewables division Iberdrola Renewables debuts on the stock exchange in Madrid this month, aiming to raise EUR 4.5-5.9 billion. That figure marks just 20% of a total capitalisation of EUR 22.4-29.6 billion, states Iberdrola.
The debut is receiving attention from stock market analysts internationally. "Socially responsible investment demand far exceeds the supply of equity issues by renewable energy companies," John Lynch of Merrill Lynch, a major bank advising on the deal, told the Wall Street Journal last month.
Although smaller renewable energy firms in Spain have also gone public this year, analysts are more inclined to compare the Iberdrola flotation with the EUR 391 million initial public offer by EDF Energies Nouvelles, the renewables arm of France's EDF, Europe's biggest utility, at the end of last year. That issue was more than 20 times over-subscribed, with share value up 98% since, according to Lynch. Although Spanish equity investors are looking for alternative opportunities to the property boom, now widely considered to have peaked, some market observers are saying the offer is overvalued and should more properly have been pitched at just under EUR 20 billion. Analyst firm Renta 4 expects the offer to be picked up by investors, but at a much slower pace than the immediate oversubscription popularly predicted.
The final value is unlikely to affect the main thrust of Iberdrola's growth plan for renewables, which has been given top priority. Renewables is granted no less than 48% of a total group investment of EUR 17.8 billion for "organic growth" across its existing businesses. The sum does not include a further EUR 6.4 billion set aside to finalise the takeover of American utility Energy East.
Iberdrola is by far the largest wind power operator in Spain and since its takeover of ScottishPower -- and that company's US wind holdings -- earlier this year, also crowns itself wind energy top dog in the UK and across Europe and runner up in America. Consolidation of it global wind energy leadership is a stated aim. Markets abroad make up 86% of planned investment for the renewables division, compared to 70% for the utility as a whole. Spain accounts for EUR 1.2 billion, or 14% of the EUR 8.6 billion total. Over half of that is marked for the US, which will see EUR 4.6 billion flow in its direction if all goes according to plan. A further EUR 1.2 billion will go to the UK and EUR 1.5 billion to the rest of the world, mainly Europe.
Cautious goals
As large as the sums are, Iberdrola has a track record of exceeding its own expectations. That could well be the case again as the utility's targets represent a conservative assessment of the pace at which its 41 GW renewables portfolio is being realised. In the UK alone, Iberdrola projects development of just 800 MW, yet following its purchase of ScottishPower it has 353.5 MW under construction, 711 MW consented, 868 MW waiting for site permits and has recently won preferred bidder status in Wales for between 100-200 MW.
In Spain, Iberdrola Renewables is targeting 900 MW to 2010 in Andalucía alone. That would take up at least EUR 1 billion, leaving EUR 0.2 billion of the total EUR 1.2 billion budget to spread across the entire rest of Spain, including the mighty wind regions of Galicia, Castile-La Mancha and Castile and León, regions in which Iberdrola leads.
The EUR 1.5 billion for Europe and the rest of the world also seems a thin spread given recent news. Most recently, Iberdrola Renewables acquired half of Italian wind developer Societa Energie Rinnovabili, targeting 350 MW "over the next few years." In eastern Europe, it has nearly 250 MW up or building across Poland and Estonia and over 1000 MW across the region in the pipeline. The company is also behind a 1000 MW joint venture plan in Russia (box) and earlier this year landed prospecting rights for 1000 MW in the Chinese district of Bayannaoer.
"For a listed company, especially, it's infinitely better to surpass realistic targets than fail to reach unrealistic ones," says Luis Merino of Spanish renewables publication Energías Renovables. And since wind power became a core Iberdrola business in 2002, the utility has continually outstripped its own targets. Equity investors will be hoping for a repeat performance.
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