I Squared Capital clean energy portfolio sale hits snag

06 August 2019 - 12:00 am UTC

I Squared Capital’s intended sale of its 1.4GW clean power assets Asia Cube Holdings has encountered hiccups due to price discrepancies with suitors, four sources familiar with the situation told Mergermarket, a sister publication to Inframation.


The global infrastructure investment fund retained Credit Suisse to explore the sale since last September, as reported by SparkSpread and Inframation.


A few suitors including Japan’s integrated trading and investment house Marubeni have been shortlisted to the second round, but they are still considering if they should proceed, the fourth source said. Other suitors that were reported to have shown interest in Asia Cube Holdings earlier this year include EDF Renewable China and Singapore sovereign wealth fund Temasek Holdings.


Asia Cube Holdings’ EBITDA stands at around USD 155m. Its portfolio includes Asia Cube Energy, which contains 23 renewable energy assets in China, South Korea, Taiwan and Vietnam that contribute 87% to Asia Cube Holdings’ EBITDA.


The assets also include 13 waste water treatment assets with a total capacity of 312,500 tons per day, and two hazardous waste treatment assets in five Chinese provinces.


China assets

I Squared Capital acquired four solar power assets with a total electricity output of 50MW in China from state owned Jiangsu SUMEC New Energy Development Co. for CNY 262.87m (USD 38m) in 2017, according to Mergermarket data. These assets were later consolidated into Asia Cube Holdings, the first two sources noted.


The valuation modeling for the solar assets was based on the assumption of a 20-year government subsidy of CNY 0.2/W, which in fact was only secured for three consecutive years after I Squared Capital’s acquisition, the first source said. This has led to unmatched price expectations between I Squared Capital and potential suitors, the first and third sources said.


The Chinese government is probably delaying payment of clean energy subsidies, which is becoming quite common in China, the second source noted, added that the potential new owner will need to cover capex with its own cash reserves, if the subsidies do not arrive in time.


Chinese state-owned enterprises are able to sustain a capex of such scale, the second source said, adding that SOEs can borrow at an interest rate of 5%, compared to over 10% for private peers.


Tepid interest

Potential buyers have also shown tepid interest in acquiring the whole portfolio given its wide geographical spread, according to the first and third sources.


The sellside has also considered splitting the portfolio and exploring separate sales of the assets, the first source said.


Beijing Enterprises Water Group, which was approached by sellside, is only interested in water-related assets in China, the second source said.


BlackRock Renewable’s targeted markets in APAC are OECD markets including South Korea, non-member but key partner Chinese Taipei, a fifth source familiar with the situation said. BlackRock was reported by SparkSpread to have submitted a bid for the portfolio.


Credit Suisse, Marubeni and BlackRock declined to comment. I Squared Capital did not reply to a request for comment.


A spokesperson at BEWG said the company is no longer keen on the assets.


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