Swiss/ British investment group buys 12.7% stake in Icelandic geothermal firm HS Orka
DC Renewable Energy AG, a Swiss investment firm, has announced a successful bid for a 12.7% stake in Icelandic geothermal power company HS Orka currently held by a group of Icelandic pension funds. The deal still has to finalised, as other shareholders have a pre-emptive rights to shares in the company.
Reported yesterday in Icelandic media, Swiss investment company, DC Renewable Energy AG, owned by Britain’s Edmund Truell, who has long worked to establish a power cable connection between Iceland and the UK, has bought a 12.7 percent stake in HS Orka, according to sources of the paper. The seller is the professional investment fund ORK, but the item was placed in a formal sales process in May this year.
While there is no confirmation of the actual purchase price, expectations for the achievable price back in May when it was put up for sale were around ISK 7 billion (around USD 67 million at exchange rate of May 2018). The assets of ORK in HS Orka, include a 30% holding in the Blue Lagoon. That in part was valued at around $90 million through bids in a sales process that was not concluded, as we reported.
The sale was managed by the corporate finance team of Kiva Bank in Iceland.
The parent company of DC Renewable Energy, Disruptive Capital Finance, is registered in Switzerland. In recent years, DC Renewable Energy has introduced an Icelandic energy sector through its sister company in the UK, Atlantic SuperConnection, which specializes in development projects. If the company believes that there is a chance of further utilization of geothermal energy for global production, it is said that the acquisition of HS Orka is a good investment opportunity for the long term.
Atlantic SuperConnection has, in recent years, worked on numerous analyzes of the feasibility of laying a marine cable between Iceland and the UK. The plans saw the feasibility for a power export of around 600-700 MW through a cable to the United Kingdom.
The 12.7 percent share in HS Orka was owned by the Professional Investment Fund ORK in July last year when an agreement was reached with Magma Energy, a subsidiary of the Canadian Energy Company Alterra, on the settlement of a bond issued by Magma on the acquisition of its share in HS Energy in 2009. Instead to pay the outstanding principal of the bond shortly before maturity, it was agreed that ORK, which had bought the letter from Reykjanesbær in August 2012 for ISK 6.3 billion, would collapse and acquire 12.7% stake in HS Orka by Magma. As a result, Magma’s share decreased from 66.6 percentage points to 53.9 percent, while fourteen pension funds also own 33.4 percent stake in HS Energy through the Geothermal Geothermal Society. Magma Energy is currently owned by the Canadian energy company Innergex, which began at the beginning of the year from the acquisition of all of the shares in Alterra.
According to the Articles of Association of HS Energy, 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 Jardvarma decided not to take advantage of the pre-emptive right, thus adding a 12.7 percentage point. The Board of Jardvarma has now two months to decide whether the company intends to take advantage of the pre-emptive rights.
HS Orka, which owns and operates the Svartsengi and Reykjanes geothermal power plants, is the only privately owned power company in Iceland. The company’s profit for the previous year amounted to ISK 4,588 million (USD 41 million), increasing by just over ISK 1,500 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 to shareholders this year. The total assets of HS Orka amounted to ISK 48.4 billion (USD 438 million) at the end of 2017 and the company’s equity was approximately ISK 35.5 billion (USD 321 millioin).
The HS Orka’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, with the highest bid of around ISK 11 billion. However, the sale did not go through as Jardvarma’s 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.