Wednesday 18 July 2018

Energy companies line up to prise off Gaelectric's assets

Gaelectric’s Brendan McGrath
Gaelectric’s Brendan McGrath

Gretchen Friemann

Irish energy trader ElectroRoute is expected to prise off a number of assets from Gaelectric as the dismemberment of the troubled green energy developer gathers pace.

It is understood Dublin-based ElectroRoute, which is backed by Japan's Mitsubishi Corporation, has taken over some contracts already and the firm is understood to have submitted bids for Gaelectric's wind farm projects.

Vayu Energy, the Irish gas and electricity supplier swallowed up by the Spanish utility giant Gas Natural Fenosa (GNF) in 2016, has also displayed an interest in the asset sale, according to sources.

Another contender linked to the process is the London and Irish-listed funds minnow Greencoat Renewables.

News of the potential bidders underlines the dearth of appetite for the business as a whole as takeover partners and strategic investors steered clear.

It also points up the scale of Gaelectric's downfall, which was founded twelve years ago and was once touted as a candidate for a €400m initial public offering.

At one stage it controlled a network of offices throughout the UK and Ireland, and even established an outpost in the US. But its outsized ambitions, supported by a burgeoning debt base - the latest accounts show the liabilities had hit €352.5m - were eventually brought up short by the constant financing strains generated by development stage wind farms.

Its fate was sealed last year when hopes of a white knight investor fell flat. Gaelectric had signed an exclusivity deal with a Chinese state-backed fund that prevented the company from talking to other suitors.

As one source said, "a process that should have taken three months ended up taking nine months", and when the Beijing-based managers of China General Nuclear European Energy eventually dismissed the proposed investment - disenchanted by the level of Irish Government support to the renewable sector - the writing was on the wall.

In September, KPMG recommended a break-up of the company in the expectation this would deliver the greatest return for some 60 remaining shareholders. Mike Hayes, a partner at the accountancy firm and stalwart of the renewable electricity industry, is now running the sales process, but sources said it may take until the summer to complete the asset disposal.

Even then the cashflow back to investors may take years as a small payment for a development project is likely to be offered upfront with earn outs stretched over a multi-year time frame. One source pointed to the Montana project, which has cost €40m to date, as Gaelectric amassed development rights to 300,000 acres in the hope it could eventually erect close to 2,000MW of turbines.

The project is expected to sell for a tiny sum although shareholders will be promised a higher return further down the line if certain targets are met.

But as the first stage of the sell-off nears completion, a legal battle has erupted among the company's shareholders.

US private equity group Lone Star, which took an 8pc stake in Gaelectric, as part of a debt work out deal, is suing Eamonn McGrath, a founder and former chief executive of Gaelectric, in the Commercial Court.

The case centres on a settlement deed under which Lone Star claims about €10.6m became due and owing by Mr McGrath in November 2017.

After a demand for repayment was not met, it issued the legal proceedings.

Earlier this year it was reported that Mr McGrath and Barry Gavin, two of the main shareholders at Gaelectric, agreed to hand a portion of their equity to other shareholders. Prior to that overhaul it is understood most of the proceeds from the asset sales would have flowed back to these major stakeholders who controlled 50pc of the equity.

At Gaelectric's AGM last year, investors were told the wind up of the business was likely to result in a distribution of 10c for every €1 invested, with the pay-out scheduled for autumn.

Irish Independent

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