Plans for sale of 12.7% stake in Icelandic geothermal firm HS Orka

Plans for sale of 12.7% stake in Icelandic geothermal firm HS Orka Ormat unit at Svartsengi plant, Iceland (source: Ormat)
Alexander Richter 23 May 2018

Icelandic Investment Fund, ORK, largely owned by Icelandic pension funds, plans to sell its 12.7 percent stake, valued at around $70 million in Icelandic geothermal energy company HS Orka. HS Orka also holds a 30% stake in the Blue Lagoon geothermal spa.

Icelandic Investment Fund, ORK, largely owned by Icelandic pension funds, plans to sell its 12.7 percent stake in Icelandic geothermal energy company HS Orka. A formal sale process began last week, according to market sources, but expectations are expected to be in the range of ISK 7-8 billion ($67 to 76 million) for the shareholding in the power company. Based on that valuation, the company’s market value is about ISK 55 to 63 billion ($524 to 600 million). The sales process is managed by the Corporate Finance unit of Icelandic bank Kvika.

According to sources, there is considerable interest in the stake in HS Orka, both with foreign and domestic investors, with non-binding offers expected to arrive next month. Should plans be made, the sale could end at the end of summer this year.

The nearly thirteen percent stake was acquired by the Professional Investment Fund in July 2017, after an agreement was reached with Magma Energy, a subsidiary of the Canadian Energy Company Alterra. The agreement settled a bond that Magma had issued on its acquisition of HS Orka in 2009. Instead of paying the outstanding principal of the bond, the parties agreed that ORK, which had purchased the bond from the Reykjanes Municipality in August 2012 for ISK 6.3 billion (ca $52 million at the time), that the bond would collapse and ORK acquires 12.7% stake in HS Orka by Magma shortly before maturity of the bond.

As a result, Magma’s share decreased from 66.6% to 53.9%, while 14 different pension funds also own 33.4% stake in HS Orka through the a joint holding company called Jarðvarma. Magma Energy is currently owned by the Canadian energy company Innergex, which acquired all shares in Alterra Energy at the beginning of the year.

According to the Articles of Association of HS Orka, shareholders, the Company itself, have pre-emptive rights to shares in the company as a result of ownership change in proportion to their shareholdings. In conjunction with the agreement with ORK last year, Magma Energy fell from its pre-emptive right, and then the board of directors of Jarðvarma decided not to take advantage of its pre-emptive right, thereby opening the sale of the 12.7% stake now.

30 percent in the Blue Lagoon

HS Orka, which owns and operates the geothermal power plants in Svartsengi and Reykjanes, is the only power company in Iceland, owned by private investors. The company’s profit for the previous year amounted to ISK4,588 million ($44 million), increasing by just over ISK 1,500 million ($14.3 million) year-on-year. Then, HS Orka’s operating revenues increased by ISK 430 million and amounted to more than ISK 7,530 million in 2017. The Board of Directors proposed that dividends be paid in the amount of ISK 440 million ($4.2 million) to shareholders this year. The total assets of HS Orka amounted to ISK 48.4 billion ($460 million) at the end of 2017 and the company’s equity was approximately ISK 35.5 billion ($333 million).

HS Orku’s assets are 30 percent in the Blue Lagoon. The company’s shareholding was placed in the sale process in mid-May last year, with Blackstone, one of the world’s largest investment funds, giving the highest bid, or about ISK 11 billion ($106 million). However, the sale did not go through as Jarðvarma decided to exercise its veto on the basis of a shareholders’ agreement on minority protection, and rejected the offer. There was a great deal of dissatisfaction with the owners of Alterra, the then owners of Magma Energy, with the decision of the pension funds to reject Blackstone’s offer, as it was somewhat above the expectations of HS Orku’s management when it was decided to put the company into a sales process.