Macquarie Group (OTCPK:MQBKD) is well known for its infrastructure plays. It has a formidable record of identifying opportunities and building valuable assets. Macquarie associates have formed Equis, which is an Asia-Pacific focused group, with a particular interest in renewable energy. In 5 years Equis has raised funds and built the leading renewable energy powerhouse in the region. Now it is time to sell it and there is evidence of interest from a number of parties who wish to grow the business from here. While the details are sketchy, it is clear that the buyer will get substantial leverage in one of the world’s fastest growing renewable energy markets. Here I give some background to the emerging story.
Equis, the parent group
Equis was founded in 2010 and has become Asia’s largest independent infrastructure private equity manager. Its funds comprise 4 vehicles: Equis Asia Fund I ($647 million), Equis Direct Investment Fund ($298 million), Equis Asia Fund II ($1.006 billion) and a Co-investment Vehicle ($715 million), representing a total of $2.666 billion of funds available for investment. The Investment platforms comprise three Renewable Energy Vehicles : Equis Energy (Asia Pacific Solar, Wind and Hydro Power Generation), Japan Bioenergy (Japanese Bioenergy Generation), Dans Group (Asia Pacific Hydro Power Generation), and four Infrastructure Groups : Asia Networks (primarily South-East Asia Telecommunications Infrastructure), Bioeq Energy (South and South-East Asian Bio-energy), Infraedge (Asia-Pacific Capital Infrastructure).
Equis Energy for sale
Equis Energy, which was established in 2012, represents the biggest of the three Equis Renewable Energy platforms. It has scale with 97 Assets in its portfolio, with 34 being operating assets and 11 under construction to total 4.4 GW, with a further 6.7 GW under development. The suggestion is that the asking price is in the range $4-5 billion.
The details are sketchy, with a number of interested parties being non-committal. It seems that a Singapore IPO was considered last year but subsequently a trade sale became the favoured exit option. The above report indicated that the whole Equis Energy vehicle is for sale, although a report in June indicated an intention to sell just the Indian portfolio. The Indian portfolio comprises two green energy platforms Energon and Energon Soleq.
It looks like there is a lot of interest from all kinds of parties in acquiring Equis Energy or parts of it. Consortia, which have interest in different parts of the portfolio, seem to be getting organised to bid. No-one is saying much, but this is a big deal as it is the largest independent renewable energy producer in Asia-Pacific. First round bids are due this week, so serious parties will become clear quite soon.
Geographic spread includes assets in Japan, India, Philippines and Australia. The investment mandate of Equis Funds also includes China, Indonesia, Malaysia, Thailand and Vietnam although it isn’t clear if (or how significant they are) Equis Energy has projects in these countries.
The serious players will become known soon. For now there are several that are being spoken about as being interested parties. I note four such companies here that might be of interest to investors wishing to have exposure to renewable energy developments.
I’ve written recently that, of the oil and gas majors, Shell “talks the talk” but I’ve questioned whether there is evidence that it is yet ready to invest to “walk the walk”. Acquisition of Equis Energy would be a tangible and substantial commitment by Shell to renewable energy, especially in the Asia-Pacific.
ENGIE is a large French energy company that is transitioning out of a fossil fuel past to become a renewable energy business, with special focus on solar PV, while retaining gas assets. The company has a CEO, Isabelle Kocher, with vision and courage who is reinventing the company. Acquisition of Equis Energy would be a good fit for the company, which is already strong in Asia-Pacific, with geothermal resources in Indonesia.
ORIX is a substantial Japanese financial services and investment company, which has operations in 36 countries. If ORIX becomes the successful acquirer of Equis Energy, this would substantially strengthen its Environment and Energy services business division.
ORIX is already prominent in sustainable energy and environment technologies. I wrote recently about ORIX taking a 22% stake in geothermal and energy recovery company Ormat Technologies (NYSE:ORA) which has 727 MW geothermal generation portfolio spread over the US, Indonesia, Guatemala, Guadeloupe and Kenya. The $627 million ORIX investment in Ormat closes this quarter.
Japanese Telecommunications company Softbank is part of the Japanese push into renewable energy. Softbank has a much publicised partnership with Indian Group Bharti Enterprises and Taiwanese Foxconn (OTC:OTC:FXCOF) to develop $20 billion of solar projects in India.
Clearly acquisition of Equis Energy could further consolidate Softbank’s renewable energy play in the Asia-Pacific.
Acquisition of Equis Energy is a natural fit for ENGIE, ORIX and Softbank, while it would strengthen Shell’s commitment to renewable energy. Each of these companies would most likely be interested in the whole Equis Energy package, including completed projects, those in construction as well as the planning portfolio. It has been suggested that the Japanese assets in Equis Energy are the jewels, so perhaps the Japanese companies (ORIX and Softbank) might be more interested purchasers.
Other (unnamed) groups, including Japanese trading companies and global pension funds, might be more interested in specific parts of the Equis Energy business. For example Pension Funds might want to own the operating assets as reliable cash flow generators, but they might be less interested in owning the prospective side of the Equis Energy business.
The sale of Asia-Pacific’s biggest independent renewable energy producer is interesting as it will show how these kinds of asset are valued and who wants the assets most. It seems likely that there will be a range of different interests, from Global Pension Funds, to Japanese Trading Companies, to at least one oil and gas major (Royal Dutch Shell), French Energy Utility ENGIE, (which sees the future as solar), and Japanese group Softbank (which has been a prominent investor in Indian renewable energy developments), and Japanese financial and investment services company ORIX. The winner might be of interest to investors interested in exposure to the emerging Asia-Pacific renewable energy market.
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