Wind blows right way without B&B

Australian
Monday 13/7/2009 Page: 21

AFTER a hard-fought battle to sever ties with collapsed investment bank Babcock and Brown, there is more than a glimmer of light at the end of the tunnel for Miles George, the boss of Infigen Energy the recently renamed B&B Wind Partners. Next month the Rudd government is expected to pass new legislation on renewable energy targets that will require electricity retailers to source 20% of their power from renewable energy generators by 2022.

This could be a double benefit for Infigen Energy the biggest windfarm company in the country and sixth biggest in the US. First, the company will shoot to prominence as investors look to park their money in a significant supplier of wind energy, which, advocates claim, is the cheapest and cleanest alternative energy source. Second, Infigen Energy may become an attractive takeover target as energy players such as Origin Energy and AGL, which already own wind farms, look to expand their operations.

Mr George is confident legislation will get through the Senate, saying there is "strong bipartisan support" for greater use of renewable energy. "The fourfold increase in the use of renewable energy such as wind energy is a very attractive prospect for the company," he said. He smiled at the thought that Infigen Energy might become a takeover target. "We are not averse to being taken over by another company," he said.

An engineer by training, Mr George has been associated with renewable energy investments for a long time. He joined B&B's infrastructure and project finance division in 1997. "To give B&B credit, it invested in wind farms in 1999 when there was very little interest in the industry and made some very good acquisitions," he said.

But when the debt-ridden B&B empire started to crumble last year because of the global financial crisis, Mr George knew he had to cut the umbilical cord. Infigen Energy's two biggest London-based shareholders 15% stakeholder Child Investment Fund and 13% investor Kairos, another fund manager lobbied actively for the company to part ways with B&B. Over the past eight months Mr George has been methodically cutting all remaining ties.

Infigen Energy bought out the management rights and development pipeline from B&B. Two B&B directors, Warren Murphy and Peter Hotbauer, have resigned from Infigen Energy's board and B&B's 10% stake in the company has been sold. Three weeks ago, Infigen Energy vacated B&B's plush Chifley Towers offices to more modest premises in Sydney's Pitt Street. The past year has been a gruelling and traumatic experience for Mr George but he said it had been worth it.

Today he can focus on Infigen Energy's core business of managing the company's 39 winds farms, including five in Australia, 18 in the US, 12 in Germany and six in France. Infigen Energy plans to develop more. Before the middle of next year, he hopes to sell down Infigen Energy's European assets to concentrate on Australia and the US. Last week, Deutsche Bank resumed coverage of the company with a "buy" rating on the stock.

Analyst John Hiijee said: "We continue to favour the wind energy space (because of) an increased focus on lowcarbon electricity generation coupled with wind's current dominant position as the most economically viable renewable energy source. With a global portfolio of wind farms, Infigen Energy is well placed to leverage this theme." However, Deutsche has some reservations about the company's 75% gearing. "One of Infigen Energy's key priorities for management would be to further deleverage the balance sheet," Mr Hiijee said in a note to clients.

Mr George said the company had $300 million of uncommitted cash on its balance sheet. While it had debt of $1.6 billion, the sale of its European assets over the next 12 months would help reduce the company's gearing to about 60%. "About 80% of our revenue is contracted to a wide range of utilities companies. We have high earnings before interest, tax, depreciation and amortisation (EBITDA) margins to sales of about 80%," Mr George said.

Our net operating cashflows are very predictable. Our banks are very comfortable with our level of gearing and we have no refinancing until 2022." Infigen Energy's shares rose 3c to close at $1.10 last Friday. Their 12-month low is 52c.