Saturday 3 December 2016

Investor shrugs off Brexit risk to seal cross-border power deal

Published 30/03/2016 | 02:30

As well as maintinaing its Energia and Power NI brands on each side of the border, Viridian operates in three distinct segments; an electricity generation unit, a renewables unit; and its customer-facing energy businesses. Photo: Getty Images
As well as maintinaing its Energia and Power NI brands on each side of the border, Viridian operates in three distinct segments; an electricity generation unit, a renewables unit; and its customer-facing energy businesses. Photo: Getty Images

The company behind Energia will not be broken up after being bought by investor I Squared Capital for €1bn, its new owners have said.

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I Squared Capital, which owns renewable energy and pollution control businesses in the US, India and China, is buying Viridian from Bahrain's Arcapita Group, following a lengthy auction process.

I Squared was formed in 2012 by former Morgan Stanley executives and pushed ahead with its Virdian bid despite the potential risk that Britain will vote in June to give up its EU membership.

Ireland has an integrated electricity grid connecting the markets north and south of the borders, I Squared Capital partner Guatuam Bhandari said.

I Squared is comfortable that it will remain an integrated market for utilities, regardless of the referendum, he said.

The "laws of physics" won't change after the vote, he added.

I Squared now plans to invest in expanding Viridian, including making potential "bolt-on" acquisitions in the UK and Ireland, he said. As well as maintinaing its Energia and Power NI brands on each side of the border, Viridian operates in three distinct segments; an electricity generation unit - including the Huntstown power stations in Dublin - a renewables unit focused on wind energy; and its customer-facing energy businesses.

"I don't see a break-up on the cards," Mr Bhandari said.

"We see these businesses as complementary," he added.

Viridian employs 480 people and has a 20pc share of domestic electricity sales volume on an all-Ireland basis.

Its income is split evenly between euro and sterling.

The value of the deal was not disclosed, but is understood to be in the region of €1bn.

In addition, I Squared plans to deleverage Viridian by paying off £145m of expensive junior debt once the transaction is closed.

Viridian's other lenders will also get an option to have their bonds and loans repaid when the corporate change of control (coc) happens, the Irish Independent understands.

Analysts at Davy said they expect €600m of Viridian bonds to be repaid through "various make-whole premiums and early call options", following the deal. The bonds are likely to be repaid at a premium to face value, Davy said.

The acquisition of the cross- border power company will create a platform to develop and grow across all three segments where the business operates, Mr Bhandari told the Irish Independent.

The takeover of Virdian is I Squared's first deal in either the UK or Ireland, but the fund, which manages more than €3bn in assets, has its eye on further "mid-market" transactions.

That could include assets being sold off by larger utilities that are redesigning their business models to adapt to a changing market.

"A lot of the Big Six major utilities are restructuring their portfolios, mainly getting out of legacy generation assets and trying to realign themselves to what a modern utility should look like, whether that be renewables or generation," Mr Bhandari said. "There's a fair amount of transactions that will happen this year."

Renewables in particular are seen as a key growth area. Viridian owns 747 megawatts of gas powered electricity plants and 225 megawatts of completed and planned onshore wind capacity.

The utility also buys power from 793 megawatts of windfarms and expects this to reach about 1 gigawatt by this time next year, according to the statement confirming the sale.

The Irish Independent reported back in September that Arcapita, Virdian's Bahrain-based owner, was putting the business up for sale. Arcapita had been looking to exit since at least 2013, when it emerged itself from a US Chapter 11 process.

It bought Viridian in 2006 for £1.6bn (€2bn). In 2010 it sold its Northern Ireland electricity transmission and distribution business to the ESB for £1.2bn.

Credit Suisse and Kirkland & Ellis advised I Squared Capital on the latest deal, Evercore, Houlihan Lokey, and White & Case advised on the sell side. (Additional reporting Bloomberg)

Irish Independent

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