UAC Energy Makes Attractive Bid for Infigen | KOSEC

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UAC Energy Makes Attractive Bid for Infigen

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UAC Energy Holdings has today, 03 June 2020, proposed a new addition to its business. More notably, the firm intends to acquire a 12.82 per cent ownership in renewable energy generator, Infigen Energy (ASX: IFN). This comprises of an economic interest of 2.92 per cent in Infigen’s stapled securities through a Total Return Swap (TRS) as well as a 9.9 per cent of Infigen stapled securities.

Specifically, the TRS will give UAC an option to purchase the underlying Infigen Stapled Securities should it be successful in obtaining approval under the relevant regulatory act. Ultimately, the conditions to the acquisition will comprise an approval from the Foreign Investment Review Board (FIRB) and terms relating to potential changes of control provisions in Infigen’s debt financing agreements.

The acquirer, UAC Energy, is a renewable energy investment holding jointly owned by Ayala Corporation (AC) Energy Group in the Philippines and the UPC Renewables Group. The latter who has a 25 per cent ownership in UAC Energy has been operating in Australia for three and a half years now and has developed a portfolio of energy projects across Tasmania, New South Wales, South Australia and Victoria.

UAC Energy has made a generous, all-cash takeover bid of A$0.80 per stapled security, representing a 43 per cent premium to the one-month volume weighted average price (VWAP) of A$0.56 per security. Specifically, the attractive offer price signifies UAC’s valuation of Infigen’s business. This is because a A$0.80 offer price for each Infigen stapled security will bring the total equity value of the firm to that of A$777 million. Additionally, the premiumisation was in part reflective of the tremendous support received from IFN’s securityholders regarding the acquisition.

From a broader perspective, the deal could not have emerged at a more appropriate timing for several reasons. Firstly, Infigen's stapled security price has yet to close higher than its offer price for close to three years now. Secondly, the offer price stands to benefit Infigen as the firm has been faced with exorbitant debt servicing expenditure alongside a decline in electricity prices. Thirdly, the offer will enable Infigen to pay out more consistent distributions, prevent the suspension of investments in several projects and ensure on-time delivery of Infigen’s development pipeline.

While Infigen Energy is in the midst of considering the takeover proposal, the broader market sentiment is that the offer will certainly benefit the firm in the long term. This is because Infigen Energy has, in its more recent quarterly update, cautioned of a potential slowdown in its growth pipeline as it seeks to achieve 600-700MW in renewable capacity. The firm has also been adversely impacted by the joint effects of lower domestic economic activity and lower electricity prices. Therefore, even as the Board of Infigen has advised securityholders not to take any action, the upsides to the deal are many, and the chance of FIRB failing to give the green light is low.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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