I Squared Capital nears agreement on IC Power acquisition

26 October 2017 - 12:00 am UTC

I Squared Capital (ISQ) is poised to reach an agreement to acquire a Latin American power portfolio of up to 3.5GW, Inframation understands.

The New York-based asset manager could buy Kenon Holding’s subsidiary IC Power in November for an enterprise value upwards of USD 3.5bn, sources said. Inframation reported on ISQ’s discussions with Kenon Holdings on 22 September.

In recent weeks, ISQ has emerged as the preferred bidder for the portfolio in a process that could include GIC as a co-investor.

It is understood that the Singaporean sovereign wealth fund’s investment committee will review the transaction this week. GIC is understood to be a limited partner (LP) in ISQ’s second fund, ISQ Global Infrastructure Fund II. The fund has secured commitments of more than USD 4bn after holding a first close, Inframation reported.

A release from Singapore and Israel-based Kenon Holdings published on Thursday (26 October) said it was in advanced discussions with a top-­tier financial investor about sales terms for IC Power’s assets in Latin America and the Caribbean.

It is understood that one of the reasons ISQ is the preferred bidder is because its bid included all of these assets. In contrast, the rival bid for IC Power came from Colbún, which only offered to buy IC Power’s Peruvian and Chilean assets, sources said.

IC Power’s Peruvian and Chilean holdings represent 2.45GW of the group’s 3.49GW portfolio, comprising 16 assets in 10 Latin American countries (see chart).

The Peruvian assets total 64% of IC Power’s Latin American portfolio by capacity, while the Peruvian and Chilean assets combined account for 70%.

The three largest assets have a combined EBITDA of USD 189m. Should the transaction include all of the Latin American assets, the transaction would have an EV/EBITDA multiple of 12x.

Kenon, I Squared and GIC declined to comment.

Figure 1: IC Power Latin American Power Portfolio

Asset

MW

Location

Generation type

Ownership Interest

Adj EBITDA

Outstanding Debt

Net Debt

Corinto

71

Nicaragua

HFO

65%

28

88

79

Tipitapa Power

51

HFO

65%

Amayo I & II

63

Wind

61%

Puerto Quetzal

179

Guatemala

HFO

100%

5

18

13

Nejapa

140

El Salvador

HFO

100%

12

4

3

Kanan

92

Panama

HFO

100%

11

46

44

Pedregal

54

Panama

HFO

21%

JPPC

60

Jamaica

HFO

100%

4

1

-2

CEPP

67

Dominican Republic

HFO

97%

3

1

9

Supertroil

31

Colombia

Natural Gas

60%

2

1

Colmito

58

Chile

Natural Gas and diesel

100%

3

17

16

Central Cordones

153

Diesel

87%

9

35

32

Kallpa

1063

Peru

Natural Gas

75%

139

414

393

Samay I

632

Diesel and Natural Gas

75%

19

339

321

CDA

545

Hydroelectric

75%

31

593

556

COBEE

228

Bolivia

Hydroelectric + Natural Gas

100%

20

88

51

Total:

3487

 

 

Total:

284

1646

1516

Source:Kenon Holdings FY Ending 31 Dec. 2016

Revenue stream of assets

The three largest assets in the portfolio, all in Peru, are contracted under long-term arrangements.

The combined cycle gas plant named Kallpa has a six off-takers with mining and distribution companies in the country. The earliest that any of these arrangements expire is December 2020.

The Puerto Bravo asset, a thermal power plant also known as Samay I, has a 20-year term PPA arrangement with ProInversión, the country’s procurement and investment agency.

The third Peruvian asset, the hydroelectric project named Cerro del Aguila, has three off-taking arrangements.

It is likely that ISQ will keep a large portion of the financing in place and that it will assume the debt with the current creditors. I Squared will use the same management team as it has done with its 2016 transaction of Duke Energy assets, some of which were renamed Orazul, sources added. 

Inframation previously reported that Peru has strong regulations governing market share in the electricity sector to prevent monopolies. ISQ could therefore have to file for special approval if it were to acquire a second generation asset, according to an advisor not involved in the deal. This is because ISQ acquired Duke Energy, a large portfolio of generation assets across Latin America, in late 2016. 

Oversupply in Peru has suppressed prices of generation assets, triggering an increase in M&A during 2016-2017.  The country is seeing a marked increase in M&A activity because of oversupply in the energy generation system. Inframation previously reported on this development.