Chile’s leftist President Gabriel Boric called a referendum this week in December on a proposed new constitution to replace a 1980 Pinochet dictatorship-era charter.
After the public rejected Boric’s progressive text last year, which prioritized things like climate, gender equality and rights for indigenous communities, a new version was drafted by a more conservative group. She proposes stricter border controls, an organized crime prosecutor’s office and tightening the country’s already restrictive abortion laws.
Boric, who has been politically battered by last year’s referendum, may not be a fan of the latest initiative. But if he gets through, he’ll have to live with it.
He’s not the only one uncomfortable with a Chilean legal document.
Dublin-based Mainstream Renewable Power has racked up pre-tax losses of more than 1.2 billion euros since the start of last year as assets in Chile were sued as contracts signed in 2016 fell through.
Mainstream was founded by businessman Eddie O’Connor and acquired by Norwegian group Aker Horizons in 2021. Mainstream received contracts to develop 1.4 gigawatts (GW) of wind and solar energy projects in Chile.
Power purchase agreements with local electricity distribution companies mean that the company’s power plants, primarily in northern Chile, commit to delivering electricity to customers in the predominantly high-demand central part of the country – regardless of wind, sunshine or both.
[ Mainstream Renewable to cut almost third of costs after €1.1bn of losses ]
To fulfill contracts, electricity often has to be purchased on wholesale or spot markets in high-demand areas where prices have been high recently. If Chile had well-functioning electricity transmission and storage systems, this would not be a problem. But it doesn’t.
This has resulted in Mainstream posting an average loss before interest, taxes, depreciation and amortization of 45 million euros per quarter in the five quarters to the end of June, according to SpareBank 1 analyst Velte Wilhelmsen in Oslo.
Although it was hoped that an easing of Chilean spot electricity prices would lead to a significant improvement in earnings in the third quarter of this year, that was not the case. Aker Horizons reported last week that Mainstream posted a loss of €36 million in the period.
Mainstream has recorded impairments of the equivalent of 780 million euros on Chilean assets in less than two years.
Despite the current challenges, Mainstream will “meet current market challenges while strengthening its position for future growth.”
The market’s problems have also led to the bankruptcy of two other foreign-based green energy companies, Maria Elena Solar and Ibereolica Cabo Leones.
Mainstream began restructuring the debt of two Chilean entities in July. A deal is expected to be completed shortly.
Mainstream chief executive Mary Quaney has also drawn up plans to reduce annual costs at Mainstream by more than €45 million, equivalent to 30 per cent of running costs, and has narrowed the focus to immediate project development.
Global renewable energy stocks have plunged 35 percent in the past 12 months as the sector suffers from a rise in long-term interest rates, inflation and supply chain bottlenecks.
Aker Horizons has plunged more than 70 percent due to problems at Mainstream. SpareBank 1’s Wilhelmsen says the market values the Norwegian group’s 58.4 percent stake in Mainstream at almost zero if the group’s valuations for other units are to be accepted. “Whether there will still be value in the mainstream or not is difficult to say at this point,” he said.
Analysts at Norwegian investment bank Clarksons Securities said they “expect markets to remain unclear about how to value Mainstream until a restructuring in Chile is completed and auditors review accounting figures after the New Year.”
In any case, Mainstream’s planned separate initial public offering (IPO) within three years of the Aker Horizons deal in May 2021 is far from the agenda.
Clarksons analyst Roald Hartvigsen said Mainstream could still raise growth capital from its parent company.
“But we believe that spinning off and selling parts of the development portfolio is a more elegant approach,” he said.
Mainstream has a total wind and solar development pipeline totaling 19.4 GW, spanning Chile, South Africa, the Philippines and Vietnam.
Aker Horizon’s original deal to buy 75 percent of Mainstream valued the company at up to 1 billion euros, including a 100 million euro earnout due this year, subject to the achievement of certain targets. Selling shareholders – including almost 600 high-net-worth Irish individuals who backed O’Connor when he founded the company in 2008 – were told last year that the deferred amount would not be paid out because targets would be missed.
O’Connor and Irish investors, who transferred some of the proceeds from the sale in 2021 into a 25 percent stake, saw their shares diluted to 16.5 percent last year as Japanese firm Mitsui invested in the company.
Despite the current challenges, Mainstream will “meet current market challenges while strengthening its position for future growth,” the spokesman said. The parent company’s investors still need to be convinced.
Comments are closed.