Greencoat UK Wind (UKW), the largest listed renewable energy fund, is considering a transformational bid to buy a 49% stake in the wind farm business of EDF.
According to the Financial Times, the French energy group is looking to sell a minority holding in its portfolio of 24 UK wind farms in order to raise up to £600 million to reinvest in its growing renewables business.
Greencoat is well placed to pull off the transaction having bought an 80% interest in five wind farms from EDF last November. It is heading up a consortium that includes Dalmore Capital, the infrastructure fund manager, the FT reported, but faces competition from pension funds.
Adding EDF’s 23 onshore farms and one offshore wind farm to its existing portfolio of 30 wind farms would be a ‘game-changing transaction’ for the £1.2 billion investment trust, said Matthew Hose, equity analyst at Jefferies.
‘The resulting larger pool of assets would create various virtuous circle effects in terms of the fund’s running costs, available finance costs and access to investments,’ said Hose.
The analyst estimated Greencoat would need to issue between £420 million and £480 million in new shares to fund the deal, having only last week raised nearly £119 million from shareholders to increase its stake in Clyde wind farms.
The share issue at 117p, a 3.9% premium to its net asset value on 31 March, was heavily oversubscribed, according to the company.
‘With gross assets of £1.65 billion following the (impending) completion of the purchase of the additional stake in Clyde, the fund is now of the size where it can bid for utility-scale portfolios. Moreover, as the managers have often highlighted, the fund is structured to be a utility-friendly buyer and co-investor, as it can pay cash and is wholly independent of any utilities or developers,’ Hose said.
Managed by Greencoat Capital, UKW was the first renewables fund to float on the London Stock Exchange in March 2013 and is the only one in its seven-strong sector to focus purely on wind power. It pays quarterly, inflation-linked dividends and yields 5.7%, making it popular with pension fund and wealth managers.
Its three biggest shareholders are Newton Investment Management, Investec Wealth and Legal & General, which own over 20% of the company.
Over five years UKW has generated a total shareholder return of 49.1%.
The shares firmed 0.2p to 120.2p on Monday, at a 6.5% premium to their estimated NAV per share of 112.65p, according to Morningstar.