A great reminder of things to come18 Feb 2015 16:05
http://www.proactiveinvestors.co.uk/companies/news/71172/rame-energy-looking-to-power-up-with-chilean-growth-71172.html
The company is being bankrolled by a local subsidiary of Santander under a quite intricate funding formula that appears to be a win-win.
Santander has committed US$69mln; however, this isn’t subordinated debt.
It will invest at an equity level, acquiring its stake of up to 90% of the project, on an agreed price per megawatt hour.
Under this formula, the amount invested by Santander to acquire its stake will be more than it costs Rame to develop the asset – so there is a profit there for the company.
It also makes a margin from the building phase itself. Rame’s expertise in project management and construction should minimise the leakage of cash out to a subcontractor.
“Less than a year down the line, Rame will have the opportunity to buy Santander out of its share of the project,” Adams said.
"This should see the bank receive a private equity level of return for a short hold period, while still generating a strong return for Rame for the life of the project.”
The deal could be funded through a traditional bank facility, although it is considering all of its funding options, including a bond.
The last stage of the value creation process would be to sell 49% of the forward revenue stream to financial institutions such as cashed up Chilean pension funds, seeking to invest in long term and low risk cash flows.
“They are hungry for low risk, stable income project investment and are increasingly recognising the potential of energy projects, in addition or as a substitute to traditional infrastructure projects such as toll roads or hospitals,” the chief executive explained.
“We would then be left with a majority holding of a project which, in addition to the immediate revenue from the sell down which can be re-invested in new projects or returned to shareholders, will provide the company with a long term, stable income stream.”
As he points out, 100 megawatt (MW) sold on this basis “would see substantial cash inflows”.
The group expects to build 300MW of capacity by 2017 and the Rame chief executive is confident the demand is there to achieve that target.
“We are currently saying the sweet spot for us is when we have circa 100MW. So there is no reason why we couldn’t dividend in early 2016,” the Rame boss explained.
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