The portfolio comprises six assets: a 100 percent stake in the 58MW Cherry Tree Wind Farm and a 72.39 percent stake in the 31MW Kiata Wind Farm, both in Victoria; a 49.8 percent stake in the 112MW Granville Harbour Wind Farm in Tasmania; a 30 percent stake in stage one of Hornsdale Wind Farm in South Australia, which has a capacity of 102MW; and 20 percent stakes in each of stages two and three of Hornsdale, which have capacities of 102MW and 109MW, respectively.
Only Granville Harbour is not fully operational, but it is expected to be so at or before the closing of the transaction. The total capacity of the portfolio assets is 514MW, with the First Sentier ownership stake representing 209MW. First Sentier will also seek to acquire a further 25.03 percent stake in Kiata Wind Farm that is owned by a minority investor via John Laing’s drag rights.
Infrastructure Investor understands that First Sentier has made the acquisition through its open-ended Global Diversified Infrastructure Fund, the fund’s first exposure to Australian renewables. First Sentier did not disclose the vehicle used to make the acquisition and declined to comment on the source of funding for the deal.
John Laing put the portfolio up for sale earlier this year after putting all new investment in Australian renewables on hold in August 2019. The firm booked a £66 million ($86 million; €72 million) write-down on projects due to changes in marginal loss factors, the system used to determine transmission loss values in Australia’s National Electricity Market.
Finley Solar Farm and Sunraysia Solar Farm in New South Wales were to be included in the portfolio sale, but they were removed from the process some time ago and remain under John Laing ownership. The firm said in a statement that it still has plans to fully realise its renewables portfolio over the next two years.
John Laing said that the sale represented a small uplift to its book value for the portfolio as at 30 June 2020, equivalent to a money multiple on its investment of 1.5x.
Danny Latham, partner in First Sentier Investors’ unlisted infrastructure business, told Infrastructure Investor that the firm had been looking at Australian renewables “for a good while” before feeling able to strike this deal.
“We’ve looked at probably more than 50 renewables deals over the last three or four years, and just haven’t found that the risk-return mix was appropriate,” he said.
“Either the contracted position was too short, or there were curtailment issues and MLF issues in the Australian market. We’ve generally found there has been too much merchant risk. We came up short in a number of deals because the market was frothy and willing to more aggressively price those risks, some of which have come home to roost, particularly in Australia.”
Latham said the portfolio was attractive because it was “de-risked”, thanks to a weighted average maturity of 12 years on offtake agreements and the fact that it comes with minimal construction or development risk. It also provides a platform for further growth with the potential for future bolt-on acquisitions.
“We think there’s a lot of opportunities [in Australian renewables] – it’s like in some of our other portfolio companies, where we’ve done bolt-ons to those assets on a bilateral basis that fits with our mid-market focus. We see this as the start of a platform build-out,” he said.
Another motivating focus is investor appetite for “utility-style” assets during the current uncertainty caused by covid-19.
“We saw this post-GFC and the same thing is playing out now – there’s an increasing buy-sell spread on transportation assets, where buyers and sellers have got different views of value and about where the world’s going on things like toll road forecasts. So we’re starting to see an increasing focus on more utility-style assets, [including] renewables, water, waste, and waste-to-energy,” Latham said.
The acquisition is subject to Foreign Investment Review Board approval and is expected to reach financial close by early 2021.