As I write this, Alinta Energy’s securityholders are about to vote in favour of a reorganisation proposal put forward by private equity group TPG on behalf of Alinta’s lenders. By the time you read it, what seems a fait accompli should be fact. It’s an unfortunate fact for us.
To summarise, the TPG consortium is paying Alinta securityholders (including the Intelligent Investor Value Fund) $0.10 per security to hand over the keys to Alinta Finance, the entity that owes all of the debt and owns everything except the probably worthless Redbank Power Station.
As the directors have been very vocal in pointing out, that’s a lot more than the 3.3 cents we would get if Alinta Finance were to enter administration. But that doesn’t mean we didn’t have bargaining power.
Let’s assume that they are right. If this deal goes through, we get paid $80.7m to go away. If Alinta Finance goes into administration, we only get $26.6m. So we’d lose $54.1m. Fair enough, that wouldn’t be a good result.
Look at this from the other side, though, and ask what the TPG consortium has to lose if Alinta Finance goes into administration.
At 30 June 2010, Alinta Energy had carried forward income tax losses of $436m, carried forward capital losses of $104m and $13m of franking credits, all of which would be lost if the business were declared insolvent. Not to mention the fact that an insolvency event would allow Alinta’s customers to cancel any power contracts that were currently above market and that the administration process itself would be extremely costly, putting a large hole in the value the TPG consortium would be able to realise for Alinta’s assets.
It’s probably worth somewhere between $300m and $500m to keep Alinta Finance alive. Coastal Capital, a US hedge fund that established a 17% position in Alinta after the initial deal was announced, is of the belief that a more meaningful share of that benefit should be paid across to Alinta securityholders.
It’s fairly obvious from the numbers above that TPG would have had no choice but to come to the table. Unfortunately for Coastal, and for us, Guinness Peat Group (GPG) owns 19.9% of Alinta’s securities and they didn’t share that view (GPG has announced that it has already voted in favour of all resolutions). The GPG of today is clearly not the GPG of old and, given its own liquidation process currently underway, probably has as much appetite for risk as the Alinta directors.
Coastal, it seems, missed this important piece of the puzzle. We shouldn’t complain I guess – we have almost doubled our money in a relatively short period of time. But triple would have been nice.
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