Innergex sells stake in Icelandic energy firm HS Orka for $305m to Macquarie fund

Svartsengi geothermal power plant, Iceland (source: ThinkGeoEnergy)
Alexander Richter 25 Mar 2019

Innergex Renewable Energy Inc. reached an agreement to sell its 53.9% equity interest in Icelandic geothermal operator HS Orka hf for a purchase price of US$304.8 million to a Macquarie Infrastructure and Real Assets managed European infrastructure fund.

Canada-based Innergex Renewable Energy Inc. (TSX: INE) just announced that an agreement has been reached to sell its wholly-owned subsidiary Magma Energy Sweden A.B. (“Magma Sweden”) which owns an equity interest of approximately 53.9% in HS Orka hf for a purchase price of US$304.8 million (CAN$408.8 million) to a Macquarie Infrastructure and Real Assets managed European infrastructure fund, subject to customary closing adjustments.

“This transaction is highly strategic and will create significant value for Innergex as it allows us to focus on our core markets, reimburse our one-year credit facility, deleverage our corporate credit facilities and reduce our exposure to foreign exchange,” said Michel Letellier, President and Chief Executive Officer of Innergex.

“Given Innergex’s non-operatorship role in HS Orka, we viewed the sale of this non-core asset to be consistent with our long-term strategy of developing, owning and operating high quality renewable energy assets in our core markets and competencies.”

HS Orka owns two operating geothermal facilities (Reykjanes and Svartsengi) totaling 174 MW, the 10 MW Brúarvirkjun run-of-river hydro project which is under construction, a number of prospective renewable power projects, as well as a 30% equity interest in the Blue Lagoon Geothermal Spa and Resort in Iceland.

Net proceeds from the sale will be used to reimburse the CAN$228 million one-year credit facility contracted in October 2018 at the time of the acquisition of the remaining interest in the Cartier wind farms and operating entities, to deleverage corporate facilities and for general corporate purposes.

The fully funded transaction is subject to the satisfaction of certain closing conditions, including receipt of key third party consents, a right of first refusal in respect of the shares of Magma Sweden (exercisable for two months on the same terms and conditions), as well as other customary conditions. All required conditions are expected to be satisfied in the second quarter of 2019 with closing of the transaction to be completed after the satisfaction of such conditions.

2019 Updated Projections

The Corporation is updating its 2019 financial projections made available in its latest Management’s Discussion and Analysis. Assuming a closing of the transaction at the end of the second quarter of 2019 and as a result of the disposal, the 2019 financial projections are revised and the Corporation expects power generated to increase by 10% instead of 20%, Revenues to increase by 7% instead of 15%, Adjusted EBITDA to increase by 11% instead of 15%, Adjusted EBITDA Proportionate to increase by 9% instead of 12% and Free Cash Flow to increase by 10% (same as previously projected). In addition, upon closing of the transaction, Innergex’s remaining weighted average term of power purchase agreements is expected to increase to 17.4 years and the weighted average age of facilities to lower to 7.2 years.

BMO Capital Markets and Stöplar Advisory are acting as financial advisors and McCarthy Tétrault LLP is acting as legal counsel to Innergex.

Source: Company release