The restructuring proposal announced this morning for Alinta Energy Group (AEJ) makes it two wins out of two for the former Babcock satellites I mentioned in Shhh … It Used To Be Called Babcock.
Security holders are going to be given 10 cents cash and will keep an interest in the Redbank Power Station. As mentioned in that post, Alinta has about $40m cash held outside the lending group. That’s about 5 cents of the 10 cent payout and the rest will be paid by new investors (mostly the old lending consortium) in exchange for the rest of Alinta’s assets.
It’s a good return on our 5 cent purchase price and, while the directors think equity in Redbank is worthless and are probably right, it’s an option that could be worth something in a more optimistic market.
The securities have traded as low as 8.6 cents this morning, which I think is an excellent arbitrage opportunity for anyone with cash to spare. There are a lot of approvals, sign-offs and independent experts’ reports to be finalised but I can’t see anyone knocking the deal back, especially given GPG has already given in principle support with regards its 19.9%. The 16% potential return on offer is not to be sniffed at.
The one remaining former Babcock fund is Infigen Energy (formerly Babcock & Brown Wind). With $174m of unencumbered cash and a market capitalisation of $570m, you’re only paying $400m for the equity in the wind farms, which equates to an enterprise value of about $1.5bn (total production is expected to be between 4.3 and 4.9 GWh per annum).
If anyone has expertise in renewable energy legislation here or in the US, can you send me an email? I’m trying to reach an informed conclusion about the likely future price of renewable energy certificates.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.