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Sumitomo-led fund to acquire two UK offshore wind farms

The Japanese trading house has partnered with SMBC and the Development Bank of Japan to raise a ¥30 billion fund that will invest in offshore wind investments abroad.

A new fund launched by Spring Infrastructure Capital will acquire two operational offshore wind farms in the UK with a combined generating capacity of 926MW.

“The first fund launched is targeting only two projects […], which are the Race Bank Offshore Wind Farm and the Galloper Offshore Wind Farm,” a spokesperson for Sumitomo, told Infrastructure Investor. The Japanese trading house currently holds a 12.5 percent stake in both projects and a 51 percent stake in the fund’s GP.

Sumitomo Mitsui Banking Corporation and the Development Bank of Japan, which own the remaining 49 percent of Spring Infrastructure Capital, will also commit capital to the fund which has a target size of ¥30 billion ($270 million; €238 million). According to Sumitomo’s spokesperson, SMBC will contribute between 10 to 20 percent of the total, while DBJ and Sumitomo will each commit 25 percent.

Spring Infrastructure Capital will also look to raise capital from other Japanese LPs. “Most of the other investors have already committed capital. We are waiting for a few [investors] to commit [capital] and are confident to raise approximately ¥30 billion,” Sumitomo’s spokesperson said, without providing further details.

DBJ and SMBC did not reply to requests for comment.

Sumitomo said that the fund, which has a 10-year life span, will provide investors “with high single-digit returns on the equity IRR. [Offshore wind] is an opportunity for decent returns given the current extremely low-interest-rate environment by the Bank of Japan policy,” the spokesperson said.

Asked how Spring Infrastructure Capital will avoid conflicts of interest given that the fund will acquire assets owned by Sumitomo, the spokesperson responded: “We set up the transaction value between the fund and Sumitomo based on external valuation, and which is [approved] by investors.”

“In the future, we will mainly target Europe, but are not ruling out the possibility of investing outside Europe. However, Japanese investors’ appetite is focused on OECD countries,” the spokesperson said, emphasising that the current fund will only invest in the two UK projects.

The Race Bank Offshore Wind Farm, with a generation capacity of 573MW, started operations last June. At that time, the project was owned by Danish wind farm developers Ørsted (50 percent), Macquarie European Infrastructure Fund 5 (25 percent), Sumitomo (12.5 percent) and Arjun Infrastructure Partners and Gravis Capital Management , the latter two owning a combined 12.5 percent stake, according to a press release from Ørsted.

The Galloper Wind Farm, with an installed capacity of 353MW, started operating in the spring of 2018. According to its website, the asset is owned by Innogy SE (25 percent), Sumitomo (12.5 percent), Siemens Financial Services (25 percent) and ESB (12.5 percent).