Accretive $871 M Acquisition and Concurrent Equity Offering - Announces it has entered into a definitive agreement to acquire 100% of Aela, a 332 MW portfolio of three newly-built operating wind assets in Chile
- Immediately accretive to Free Cash Flow per Share1, with mid to high single digit accretion expected in the first twelve months post-closing assuming the implementation of the financing plan and further upside anticipated through increased sales under the PPAs over the medium term
- Extends Innergex’s presence in Chile making it one of the largest pure play renewable energy producers in the country
- Offers predicatable revenue given long-term US-dollar denominated PPAs with full CPI escalation
- Enhances portfolio of operations in Chile by incorporating wind assets which are complementary to Innergex’s existing hydro and solar assets in terms of technology and geography, while improving overall contractedness
- Unlocks financing and operational synergies for the combined Innergex Chilean portfolio
- Financed in a prudent manner consistent with Innergex’s investment grade capital structure and supported by a $150 million bought deal equity offering and $37 million concurrent private placement with an affiliate of Hydro-Qubec
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All amounts are in Canadian dollars, unless otherwise indicated.
LONGUEUIL, Qubec, Feb. 03, 2022 (GLOBE NEWSWIRE) -- Innergex Renewable Energy Inc. (TSX: INE) (“Innergex” or the “Corporation”) announces it has entered into an agreement to acquire 100% of the ordinary shares of Aela Generacin S.A. and Aela Energa SpA (together “Aela”), a 332 MW portfolio of three newly-built operating wind assets in Chile, for a purchase price of US$686 million ($871 million) (the “Acquisition”), including the assumption of US$386 million ($490 million) of existing debt, subject to customary closing adjustments.2
Aela’s portfolio consists of the Sarco wind farm (170 MW), the Aurora wind farm (129 MW) and the Cuel wind farm (33 MW) (collectively, the “Facilities”). Revenues from these facilities are anchored by two forms of power purchase agreements (“PPAs”) with 25 Chilean distribution companies, maturing at the end of 2036 and 2041.
“I am very excited to announce today the acquisition of Aela, a leading wind power portfolio in Chile, which will significantly expand our overall presence in the country to 655 MW with meaningful technological and geographical diversification. The Acquisition will extend our leadership position in Chile, an attractive energy market” said Michel Letellier, President and Chief Executive Officer of Innergex. “The Acquisition is a continuation of Innergex’s disciplined growth strategy in Chile that we’ve executed on since we entered the market in 2018 and offers an opportunity to unlock the full value of our current Chilean portfolio as these newly-constructed, high-quality assets combined with our current portfolio yield accretive refinancing opportunities, additional flexibility to service our clients under PPAs, and other operational enhancements.”
Chile: An Attractive Renewable Energy Market
Chile represents an attractive market for investment. It is the first South American country to become a member of the Organization for Economic Co-operation and Development and maintains a strong investment grade rating as assessed by S&P (A), Moody’s (A1) and Fitch (A-). Chile leads Latin American countries with the highest Gross Domestic Product (“GDP”) per capita and lowest public debt to GDP when compared to the largest economies in the region.
The Chilean government has set national decarbonization plans including the complete phase-out of coal-fired generation with an initial step of retiring 3.5 GW by 2025 and the objective of achieving carbon neutrality by 2050. The Chilean national power grid coordinator, Coordinador Elctrico Nacional (“CEN”), forecasts electricity demand will increase at a 3.4% cumulative average growth rate from 2021 to 2041, and the average power price at the major Polpaico node in Chile has averaged US$80/MWh over 2021. These decarbonization goals and positive market fundamentals will require significant investment in the renewable energy sector in the coming years and Innergex is well positioned to participate in the ensuing growth.
Portfolio Underpinned by Newly-Constructed Long-Term USD Contracted Assets
The Acquisition adds 332 MW of operational wind capacity with over 90% of the capacity installed in 2020. The Facilities have a long-term average (“LTA”) of 954 GWh per year and diversified revenue streams anchored by two attractive forms of long-term PPAs for up to 856 GWh per year, which can be settled on a portfolio-basis including Innergex’s other Chilean assets. The 20-year PPAs, awarded in 2015 and 2016 and effective in 2017 and 2022 respectively, have 16 years of remaining weighted average contracted life. The US-denominated contracts have an average rate for the first twelve months following closing of US$93/MWh and benefit from full US consumer price index (“CPI”) escalation, providing an inflation hedge.
Sales under the PPAs are with 25 local distribution companies (“DisCos”), 97% of which are represented by three investment grade blue-chip offtakers with investment grade credit profiles. Amounts sold under the PPAs are dependent on the regulated demand from the DisCos. In the first twelve months following closing, volumes sold under the PPAs are expected to be approximately 58% of the maximum output available under the PPA. Volumes sold under the PPAs are expected to increase to nearly 90% in the coming years due to a combination of higher demand and lower supply of the remaining PPAs, as some will expire before 2027. The CEN expects regulated electricity demand growth to increase at a 3.4% cumulative average growth rate from 2021 to 2041. The Comisin Nacional de Energa (“CNE”) expects regulated supply serving DisCos to decline by 37% from 2022 to 2027 as legacy supply contracts reach the end of their terms, and has communicated that no new DisCo PPA supply will be procured until 2027.
The Facilities also benefit from other sources of contracted revenues, including entitlement to receive annual capacity revenue payments based on capacity eligibility and pricing calculated by the CNE. The Facilities also generate Non-Conventional Renewable Energy credits, and a portion of these credits are sold under a 15-year offtake contract. Remaining non-contracted energy is sold on the spot market.
Enhances Innergex’s Portfolio in Chile
The Acquisition marks Innergex’s sixth investment in Chile since 2018, initially with the acquisition of a 50% interest in Energa Llaima and the 140 MW Duqueco hydroelectric complex. Since acquiring full control of Energa Llaima in 2021, Innergex has been focused on increasing operational efficiency, adding technological and geographical diversification to be better positioned to seize opportunities and further advancing greenfield project development and M&A opportunities. Over time, Innergex has developed a full complement of in-country operating and development capabilities in Chile through a team of over 80 employees, overseeing the operations of its portfolio of assets. The acquisition of Aela will reinforce Innergex as one of the country’s leading pure play renewable power producers with 655 MW of multi-technology operating capacity and several avenues for growth.
The Acquisition diversifies Innergex’s portfolio in Chile with multi-technology assets including wind, hydro and solar, and an increased geographical reach. In addition, the Facilities and PPAs increase the overall contractedness of Innergex’s Chilean portfolio from 61% to 69%, with all of the PPAs benefiting from full CPI escalation.
The increased size and breadth of Innergex’s Chilean portfolio creates opportunities to realize scale benefits for its operations, including operational synergies. Innergex’s existing Chilean generation profile also complements the generation profile of the Facilities providing greater supply optionality and portfolio-effect diversification benefits. In addition, by having access to a large and growing diversified generation mix, Innergex is able to supply large industrial customers on a 24/7 basis using clean renewable power, unlocking potential contracting and recontracting opportunities on existing assets and new development opportunities in hydro, solar and storage through its growing portfolio of development assets.
Strong Financial Contribution
The Facilities have an attractive cash flow profile and are expected to generate revenues of US$67 million ($85 million) for the first twelve months following closing based on the expected LTA generation of 954 GWh, sales under the PPAs of 498 GWh (representing 58% of the maximum output available under the PPAs) and operating, general and administrative expenses of US$23 million ($29 million) during the same period. Sales under the PPAs are expected to increase to nearly 90% of the maximum output available under the PPAs over the next five years, which, in conjunction with US CPI-linked price escalation, is expected to underpin incremental total annual revenues of US$24 million ($30 million), compared to the expected revenues for the first twelve months following closing.
Assuming the implementation of the financing plan described below, the Acquisition is expected to be immediately accretive to Free Cash Flow per Share3 with mid to high single digit accretion in the first twelve months post-closing and further upside through increased sales under the PPAs in the coming years as noted above.
Prudent Financing Plan
Innergex’s financing plan for the Acquisition is designed to be consistent with Innergex’s investment grade corporate credit rating, while optimizing the mix of corporate equity and corporate and portfolio-level non-recourse debt. The net purchase price of US$300 million ($381 million) after assumption of US$386 million ($490 million) of existing debt, will be financed as follows:
- $150 million of gross proceeds via a concurrent bought deal equity offering, before the over-allotment option;
- $37 million of gross proceeds via a concurrent private placement to an affiliate of Hydro-Qubec; and
- The remaining financing requirements will be financed by net proceeds from a combined refinancing of the non-recourse debt at the Facilities and at Innergex’s existing Chilean projects, expected to be arranged in Q2 2022.
A portion of the financing plan is supported by acquisition debt facilities provided by CIBC.
Approvals and Timeline
The Acquisition is expected to close in Q2 2022 and is subject to the regulatory approval of the Chilean Antitrust Agency (Fiscala Nacional Econmica), as well as customary closing conditions.
Concurrent Equity Offering and Private Placement
Innergex has entered into an agreement with a syndicate of underwriters led by CIBC Capital Markets, National Bank Financial Inc., BMO Capital Markets and TD Securities Inc. (collectively the “Underwriters”), pursuant to which the Underwriters have agreed to purchase on a bought deal basis, an aggregate of 8,451,000 common shares at an offering price of $17.75 per share (the “Offering Price”) for aggregate gross proceeds to the Corporation of approximately $150 million (the “Offering”). In connection with the Offering, Innergex has granted the Underwriters an over-allotment option, exercisable in whole or in part, at any time for a period of 30 days following the closing of the Offering, to purchase up to an aggregate of an additional 1,267,650 common shares at the Offering Price.
Innergex has also entered into a subscription agreement with HQI Canada Holding Inc., a subsidiary of Hydro-Qubec (“HQI”) to purchase 2,100,000 common shares at the Offering Price, for gross proceeds to the Corporation of approximately $37 million through a private placement (the “Private Placement”) as part of HQI’s rights contained in the Investor Rights Agreement between Innergex and HQI, dated February 6, 2020. As part of the Private Placement, HQI has the option, exercisable following the exercise of the over-allotment option by the Underwriters and prior to the expiry of the Underwriters’ over-allotment option, to purchase additional common shares under the Private Placement at the Offering Price as to allow HQI to maintain a 19.9% ownership of the common shares following the exercise of the Underwriters’ over-allotment option. The common shares offered in the Private Placement are being sold directly to HQI without an underwriter or placement agent.
The net proceeds of the Offering and Private Placement will be used to fund a portion of the purchase price of the Acquisition. Should the Acquisition not successfully close, the net proceeds of the Offering and Private Placement will be used for general corporate purposes including future growth initiatives.
In connection with the Offering, Innergex will file via SEDAR (www.sedar.com) a preliminary short form prospectus in all provinces of Canada by February 9, 2022. The Offering and Private Placement are subject to all standard regulatory approvals, including that of the Toronto Stock Exchange, and are expected to close on or about February 22, 2022.
The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This news release does not constitute an offer to sell or the solicitation of any offer to buy, nor will there be any sale of these securities, in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such province, state or jurisdiction.
Reaffirmation of Projected Financial Performance
On February 23, 2022, Innergex is expected to release its financial results for the quarter and year ending December 31, 2021. Based on currently available, preliminary information, results are estimated to be in line with Innergex’s November 2021 projections for revenues, Adjusted EBITDA and Adjusted EBITDA Proportionate and ahead on Free Cash Flow per Share4 for 2021, excluding the impacts of the February 2021 Texas events.
Financial Advisors
SMBC Nikko Securities Americas, Inc. and CIBC Capital Markets acted as financial advisors to Innergex.
Conference Call and Presentation
Innergex will make available an audio conference and support material relative to this announcement on its website at www.innergex.com/investors/.
About Innergex Renewable Energy Inc.
For over 30 years, Innergex has believed in a world where abundant renewable energy promotes healthier communities and creates shared prosperity. As an independent renewable power producer which develops, acquires, owns and operates hydroelectric facilities, wind farms, solar farms and energy storage facilities, Innergex is convinced that generating power from renewable sources will lead the way to a better world. Innergex conducts operations in Canada, the United States, France and Chile and manages a large portfolio of high-quality assets currently consisting of interests in 80 operating facilities with an aggregate net installed capacity of 3,152 MW (gross 3,852 MW) and an energy storage capacity of 150 MWh, including 40 hydroelectric facilities, 32 wind farms and 8 solar farms. Innergex also holds interests in 9 projects under development, two of which are under construction, with a net installed capacity of 171 MW (gross 209 MW) and an energy storage capacity of 329 MWh, as well as prospective projects at different stages of development with an aggregate gross capacity totaling 7,281 MW. Its approach to building shareholder value is to generate sustainable cash flows, provide an attractive risk-adjusted return on invested capital and to distribute a stable dividend.
www.innergex.com
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