independent

Sunday 20 April 2014

NTR looks Stateside for further growth in sun and wind projects

Company raises its game to take on fresh challenges

When NTR sold its nationally vilified West Link toll road to the Government in 2007 and in quick succession offloaded its Airtricity wind energy unit, it could almost have been endgame for the company.

With €1.3bn in the bank, it was surely at least a little tempting to simply return almost all the surplus to shareholders, perhaps offload its Greenstar waste business, and contemplate riding off into the corporate sunset.

Even NTR boss Jim Barry admits it was a thought that fleetingly crossed his mind.

"It would have been easy at the point to just play out what we had and then say it had been a great ride," says 42-year-old Mr Barry, who has been chief executive for the past nine years.

"But we saw we had the credibility to exploit further opportunities," he adds. "We've changed our orientation from quite mature but still high-performing businesses back in 2007, to almost re-basing and starting again with an earlier stage portfolio."

That earlier stage portfolio now includes a cocktail of sun, wind and alcohol, with investments in Arizona-based solar energy firm Stirling Energy Systems (SES), Missouri-headquartered Wind Capital Group, and Nebraska's Green Plains Renewable Energy (GPRE), an ethanol producer. Greenstar, which has operations in Ireland, the UK and the United States, is also still in the mix.

NTR found itself sitting on an enviable war chest by early 2008 when it sold wind energy firm Airtricity, which had operations in the US as well as Ireland and the UK, for €1.8bn to Scottish & Southern Energy. NTR owned 51pc of Airtricity, and gained about €850m from the sale. The disposal of the West Link to the Government, at the height of the boom, yielded an immediate cash payment to NTR of €488m.

NTR's shareholders, including the Roche family in Cork, which owns 40pc of NTR, and the Philip Lynch-led investment Group One51, which holds 25pc, were taken care of via a €258m share redemption. That still left NTR with plenty of money to splash out, and it's been busy spending since.

An initial 40pc stake in SES, acquired in 2008 at a cost of $100m, will be boosted later this year to 51pc via a further $50m equity injection. NTR shelled out $150m for its 62pc stake in Wind Capital Group, also in 2008. It also owns 45pc of Nasdaq-listed GPRE.

The toll roads business still forms a relatively small part of the NTR make-up and its raison d'etre now is clearly almost entirely directed towards a green agenda. But it's an agenda that is going to cost a mountain of money to pursue.

NTR's own coffers might still be bulging, but it needs to wean its company portfolio so that the businesses can raise debt or equity on their own merits, rather than living off a sugar daddy.

It's reckoned that NTR's various subsidiaries will probably need to raise close to a combined €1bn a year in order to develop existing solar and wind pipeline projects, in particular. Even with capital markets the way they are, that hunger does little to faze Mr Barry.

"We haven't had a reliance on capital markets for either debt or equity in the past couple of years and if you were to pick two years not to be in the capital markets, they were the ones," he says.

"Our need for capital will be a product of success. If we're not successful, we won't need capital."

He admits that by being in the renewable energy space, NTR must deal with "enormous numbers", and that the "scale and pace" of what is required in terms of debt or equity finance has rarely been done before.

"We can't defy gravity forever, and we will be in markets looking for equity capital next year, but that doesn't frighten me because I'm confident of the platform we have."

Mr Barry admits that though there may not be a problem with raising finance, determining a value for the various business units is a key issue.

While SES, for example, has inked agreements with a number of utilities to construct substantial swathes of solar plant in California and Texas, its technology hasn't been used before on such a large scale.

While scientific indicators have already confirmed its effectiveness and some of the Stirling power units are currently undergoing accelerated life testing, convincing fresh investors could be a tougher sell, at least initially.

"You won't find the price for anything until you actually run a process, but before we have to do that, our businesses will have made very substantial progress in terms of hitting critical valuation milestones," according to Mr Barry.

"The shape of the market in 2010 isn't something I spend time worrying about. We don't have a huge amount of flexibility [for raising funds], but if holding off a couple of quarters would make a difference then we can do that."

First on the list this year though is funding the $300m, 150MW Lost Creek windfarm in Missouri being developed by Wind Capital. Mr Barry says the bank doors that were open to NTR when it controlled Airtricity remain ajar, and that project finance availability has also loosened up within the past few months.

Elsewhere, NTR is also in the throes of restructuring the debt facility of its Greenstar recycling arm, which recently opened a major new facility in San Antonio, Texas, as it expands its footprint across the US.

Mr Barry says that process will conclude soon, resulting in a committed facility of €120m and an additional €40m uncommitted.

The refinancing will result in an increased margin for the banks, but it also removes the headache of having to refinance the debt closer to its existing 2011 maturity date.

Meanwhile, NTR's push back into the US energy sector could probably not have had more fortuitous timing.

President Obama's administration has eschewed its predecessor's aversion to science and through its economic stimulus plan has made substantial amounts of money available to renewable energy projects, either through grants or tax breaks.

That plays directly into NTR's hands and gives its subsidiaries perhaps slightly more breathing room to develop in a nurturing political environment.

Convenient, too, that Wind Capital Group boasts a beefy Democratic pedigree. Its founder, Tom Carnahan, who remains at the helm of the subsidiary, was reputedly the single largest fundraiser in Missouri for Barack Obama's election campaign.

Mr Carnahan's late father was Democratic governor of Missouri from 1993 to 2000, while Tom Carnahan's sister, Robin, is currently Missouri's secretary of state and vying for election to the US Senate next year. Their brother, Russ, is also a Democratic congressman in Missouri.

For NTR, the political aspect of doing business in the US is also one it is becoming increasingly engaged in.

"Any renewable energy business is fundamentally shaped by regulation," says Mr Barry.

"On the back of the meltdown of financial markets in the United States, Washington stepped into the breach. In effect, Wall Street has moved to Washington DC," he explains.

"A lot of effort that might previously have been focused on Wall Street is now directed at the capital, because that's where the money is. The way you go after that money is different than in Wall Street, but US corporations have always been playing the politics game in Washington."

Mr Barry adds that NTR is playing that game "very carefully".

"We want to be differentiated as a player of substance that doesn't engage on non-substantive issues. Where we have specific policy input to make, that's where we'll get involved."

NTR's shareholders will no doubt be eager to see the company become a major sectoral player in the US.

For now, the firm's investor base is dominated by the Roche family and One51, making its grey market shares highly illiquid.

Mr Barry says that NTR will not be used as the primary fund-raising vehicle for the group, as it would "fundamentally" change its nature.

"The challenge for us arises if we decide to raise any equity. If we do go out and do that again, it would be very hard for us to do that without some commitment to a listing," he explains.

"Listing has its disadvantages though. It changes the dynamic and we need to be sensitive to its implications."

Now once again far from an endgame, the real test for NTR and Mr Barry will be to see if it can pull off another coup similar to that it delivered with the sale of Airtricity. Should things pan out as expected, that Airtricity deal could become a mere footnote to NTR's corporate history.

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