The sale of Bord Gais Energy, the customer and energy generation arm of the semi-state energy company, is in choppy waters as bidders put in low-ball offers. Late last Friday, the Government was forced to amend the legislation enabling the sale of the unit in a desperate bid to keep the process alive. The changes were largely "technical", according to Energy Minister Pat Rabbitte.
A gaping chasm between bidders' valuations and the State's own estimates of the value of the Bord Gais Energy division has led to a lukewarm sales process. A confidential report into the proposed sale by state legal advisers valued the rump of the semi-state company at up to €1.5bn last year.
A separate analysis by Evercore Partners is believed to have indicated that the unit could be worth up to €1.4bn in an IPO. Barclays and A&L Goodbody have also run numbers. Those valuations are now looking racy in the extreme – at least as far as the remaining suitors are concerned.
The value extracted by the State, its advisers New Era and Canadian investment bankers RBC, is of enormous importance to the taxpayer and the country's near 400,000 unemployed.
A ding dong battle between the Government and the Troika took place last summer over the use of the proceeds of the Bord Gais sale. The troika had earmarked €3bn in cash from sales of state assets including Bord Gais Energy, the National Lottery and Coillte to repay bailout money.
The Government wanted the money to fund job creation. A compromise was ultimately agreed, with most of the proceeds to be directed towards a stimulus and job creation package as well as a backstop to borrowing.
However, the State needs to get the money first. The sale of Bord Gais, which promised so much a year ago, is now stuttering badly, with some sources suggesting that the process could be in real danger of stalling.
"We are led to believe that red tape and approval at government level means that things are not where they need to be," said a source extremely close to the process.
"We are looking at a scenario where there might not be a sale," they added. "That is one particular scenario we are running over in our heads."
A year ago, Bord Gais suggested the top six British energy companies would be coming to the table and that the unit would attract interest in Asia and the Gulf. A sales process kicked off in May, with just three bidders making it through the first round. Early indications suggested the prices offered were well below the valuations expected by the advisers.
SSE, owner of Airtricity, exited the running early, as did a US fund and a Singapore fund. Russian giant Gazprom, which had long indicated an interest in the Irish market, was very cold on the deal.
Hutchison Whampoa, the giant Hong Kong infrastructure to mobile group, also failed to come out of the blocks. Hutchison Whampoa, which is owned by Asia's richest man Li Ki Shang, had previously met with the Government and expressed interest in state assets.
While New Era and Canadian bankers RBC must have been hoping on a long list of suitors and a feverish auction process, things haven't gone to plan. The final three bidders were Malaysian group Tenaga Nacional, which promptly pulled out, and British power group Centrica and the Bahraini-owned Viridian.
It has been suggested that Centrica has come in with an offer of less than €1bn and Viridian somewhere north of €1bn, and that based on these sums Centrica is out of the running. "Viridian is the only binding bidder left in the process," we have been told.
Financiers told the Sunday Independent that the structure of the deal had been less attractive to some potential buyers. Selling off the renewable energy business, Northern Irish division and the Republic's retail arm, with its 600,000 customers, had put off some buyers. The debt tagged on to the units was also an issue. Bord Gais Group had €1.92bn in debt at the end of 2012, with some of this – about €400m – tacked on to Bord Gais Energy. And the unions are revolting.
"Only three companies were selected to do a binding bid, but there were many more interested bidders than that. It may have been appropriate to have more bidders in the process to safeguard against this situation of someone just looking at parts," according to one insider.
"The idea of a split is going to be very unpalatable. ESOP (Employees Share Ownership Plan) has to be consulted. And I don't think Bord Gais would like Viridian," he added. "But there's a market view, a political view, a board view and a union view."
"The union would have very serious concerns if Bord Gais is split into various companies," said SIPTU's Bord Gais representative Oliver McDonagh.
Viridian, which already operates Energia in the North, didn't wish to comment but the utility firm is unlikely to agree that it is 'shopping for parts'. A source with knowledge of Viridian's plans said that Viridian's intention, if it is successful in its bid, is not to "split up" the company.
"Viridian is known to have a very high regard for the business of BGE, for its people who have contributed to its growth and development, and its heritage.
"It would work with management, staff and unions to create a long term and competitive future for BGE and its customers."
Following a purchase, Viridian would own and operate the core business of Bord Gais Energy including retail gas and electricity, and energy generating and supply.
Viridian's investment partners in the bid would then own other relevant assets within the group, including operational and in-construction wind farms, with Viridian continuing to operate them on behalf of its investment partners. These partners are understood to be Hermes GPE and Allianz Capital Partners.
Despite opposition to any break-up of the business, Bord Gais is obliged under EU competition requirements to separate its generation and retail business anyway. It is also constrained by EU restrictions from selling off the business in parts in the way that some critics suggested it should boost the ultimate sale price.
Critics of the process also queried why an accelerated IPO route wasn't taken as a way to maximise value and raise €1.4bn. New Era is believed to have considered that route and decided against it because it was a much less certain process.
Floats of comparable European utility companies typically yield a 5/6 per cent dividend, but with Bord Gais's requirement for further investment for its wind farm business it would not have yielded that range, we're told.
Sources have told the Sunday Independent that the advisers have been flexible in trying to get a deal over the line. Approaches are said to have been made to Canadian company Brookfield to encourage it to co-ordinate a bid.
Originally, Brookfield was a partner in the bid by former British Gas company Centrica.
"New Era and the Government encouraged Brookfield to cobble together a bid," we're told. Brookfield said it doesn't comment on speculation and New Era declined to comment on any aspect of the sale process.
The low ball offers put the process at real risk. Regardless of the fighting talk from government circles, the State has form when it comes to turning down bids that come short of its own valuations. The €1.2bn sale of Irish Life was pulled a year ago because of sweaty market conditions. It was subsequently sold a couple of months later when markets calmed down.
Selling off state assets at knockdown prices is political kryptonite – even to a Government with a record majority. The Labour Party has traditionally been ideologically opposed to selling unionised state companies to sharp-suited private sector groups. The key players in the BGE sale are Public Expenditure Minister Brendan Howlin and Energy Minister Pat Rabbitte. Both Labour ministers. They will have come under huge pressure from unions.
Two individuals with close knowledge of the process said union opposition was at the heart of the lacklustre progress of the sale of the biggest state asset.
A successful Viridian bid would mean the break-up of Bord Gais into separate arms run by Viridian and bid partner investors – something to which there is increasingly virulent union opposition. Employees, through the Bord Gais ESOP have a 3.27 per cent stake to guard.
"BGE and its advisers, working with NewERA who are advising the Government in relation to the sale, are currently assessing the latest bids received for Bord Gais Energy. As this process is ongoing, it would be inappropriate for the ministers to make any further public comment on the process at this stage," according to a spokesman for the Department of Energy.
Bord Gais's spokeswoman said that with the sale process ongoing the company could not comment further.
A former senior Bord Gais figure queried the wisdom of selling a prize utility asset in a depressed market.
"There is a lot of selling of utilities companies in Europe, rather than buying. People are seeking to lose debt not take it on. However, it's a good opportunity to get a decent asset at a decent price. But is the price right for Ireland?"