I Squared in first full Fund I realisation with $580m sale

Lincoln Clean Energy is the first of the 15 portfolio companies to be fully exited by the vehicle, which is currently generating a 18.2% net IRR.

I Squared Capital has agreed the first full realisation from its maiden infrastructure fund after selling US-based Lincoln Clean Energy to Danish utility Orsted, in a deal worth an enterprise value of $580 million.

The $3 billion ISQ Global Infrastructure Fund I has sold the wind farm developer 19 months after it bought the company. I Squared declined to state details on the returns generated by the sale, although a source at the time of the original investment in January 2016 said it was worth “several hundred millions of dollars”.

While platforms such as the India-based Cube Highways and Irish energy group Viridian have been partially sold from Fund I, LCE is the first of the 15 investments to be fully divested. The fund had generated an 18.2 percent net IRR and a 1.3 times net money multiple, according to a presentation to the North Dakota State Investment Board in March this year.

I Squared partner Adil Rahmathulla told Infrastructure Investor that “certainly we are opportunistic” when asked if LCE was the start of a divestment process.

LCE has a portfolio of 513MW commissioned, although this is expected to rise to about 800MW once the deal is completed by the end of the year. All but 10MW of this is generated from wind power, with LCE declared by the American Wind Energy Association earlier this year as the largest non-utility owner measured by 2017 installations. LCE also owns a 1.5GW development pipeline.

Cube Highways and leasing business American Intermodal Management were the only non-energy or water investments from Fund I, with renewables including hydropower accounting for 49 percent of the vehicle. However, despite the milestones reached with LCE, Rahmathulla was reserved on building a similar platform to LCE in the future.

“The key is to figure out where you see the most risk-adjusted returns,” he said. “In 2015 and 2016, when the market was most focused on purely operating assets, we saw the best risk-adjusted returns in developing wind farms and that’s what we did with Lincoln. At each point in the cycle you have to figure out where in the value chain the most attractive returns lie. I still think developing and constructing offers attractive returns today but, in our opinion, 2015 and 2016 was a very valuable time for this.

“In the power sector today, the value is about getting closer to the customer. Any transaction that gets you closer to the consumer is where a lot of value lies.”

I Squared is close to concluding fundraising for its second fund. Sources familiar with the fundraising have previously told Infrastructure Investor it is expected to raise at least $6.5 billion, above its original $5 billion target.