NEW Energy Solar has announced that after a strategic review by RBC Capital Markets, it will sell off its two solar assets in Australia–Beryl and Manildra solar farms–and exit the Australian renewable energy market.
The review, aimed at developing recommendations to be employed to improve security-holder value, found that value of NEW’s assets were impeded by its current operational and corporate structure and the limited support for the listed renewables sector in Australia.
The NEW Boards have considered the findings of the review and have decided to sell off and exit the Australian market.
The review process undertaken concluded that the NEW asset portfolio is generally of a high quality. RBC noted that the Australian assets are in a mature operational state, while the US-based portfolio, which is attractive and of considerable scale, has yet to reach optimal operational performance.
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The Strategic Review concluded that the quality and value of NEW’s assets are not reflected in the Business’ security price.
A number of factors were identified as contributing to the underperformance of NEW securities and the lack of institutional investor interest in the Business since its listing on the ASX.
These factors include the composition of the security register and the low levels of trading liquidity; the scale of operations, market capitalisation and modest following by market analysts; inability of small-cap listed renewable companies to gain traction on the ASX; the nature and complexity of the corporate structure and reporting; levels of gearing; and the location of the assets in two very distinct markets.
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The Strategic Review’s assessment of NEW’s assets is underpinned by RBC’s finding that there is material interest in the NEW portfolio at the asset level. This interest comes from a range of investors, located in both domestic and international markets, who typically seek long-term exposure to high quality contracted renewable assets. Considering the disparity between trading performance and underlying asset value, the Strategic Review recommends addressing the complexity of NEW’s operating and corporate structure on a phased basis, commencing with the launch of a sale process of the Australian assets.
Consistent with the Boards’ adoption of this recommendation, RBC will conduct a competitive auction process for the Australian solar assets, which are situated in and in close proximity to the NSW Renewable Energy Zones, are of very high quality with proven operations and long-term contracts of 12 years with strong investment grade counterparties. Marketing and preparation for the sale will take place over the remainder of 2020 with the indicative bid phase commencing in January 2021 and completion targeted by mid-2021.
Proceeds from the potential Australian asset sale, along with funds from the recent sale of the US Solar Fund plc shareholding and the current sale process for 50 per cent of Mount Signal 2, will be available for a range of capital management initiatives which may include security buybacks, returns of capital and repayment of debt.