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US owner hires banks to run €2.75bn Energia sale

I Squared Capital seeking to offload Irish utility eight years after purchase

New York-based investment firm I Squared Capital has hired investment bankers from Morgan Stanley and Barclays to sell Irish electricity and gas utility Energia, eight years after it bought the business, according to sources.

A sale is expected to launch in the coming months. Spanish banking giant Santander has also been retained to put together a pre-arranged debt package – or what is known in deal-making circles as staple financing – for potential bidders, the sources said.

The development follows reports in February that I Squared was preparing to mount a third attempt to sell the business. Reuters said at the time that Energia, which is headquartered in Dublin but run by an executive team based in Belfast, may be sold at an enterprise value of about €2.75 billion.

Efforts to secure comment from I Squared, Energia, Barclays and Santander were unsuccessful, while a spokeswoman for Morgan Stanley declined to comment.

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I Squared, founded a dozen years ago by former executives at Morgan Stanley’s infrastructure arm, acquired Energia – then known as Viridian Group – in 2016 from Bahrain’s Arcapita Bank for €1 billion. Arcapita had owned the company for almost a decade.

The US firm subsequently sold a minority stake in Energia to an unknown investor the following year and set up a holding company over the business in the Cayman Islands.

I Squared made two unsuccessful efforts to sell the company before now, in 2018 and 2020.

Energia supplies electricity and gas to 300,700 customers in the Republic and 546,800 in Northern Ireland.

Its renewables business owns and operates 309 megawatts (MW) of wind assets and purchases electricity from 1.23 gigawatts (GW) of third-party green energy producers.

The group also owns two so-called combined cycle gas turbine plants in Huntstown in north county Dublin as well as a 50MW battery storage facility in Belfast.

I Squared will be hoping that the diversified mix of renewable and conventional power generating assets will field strong interest from buyers. European utility stocks have rallied by about 17 per cent in the past seven months, helped by expectations of a series of rate cuts by major central banks.

Energia paid out €200 million in dividends in the nine months to the end of last December, the end of its fiscal third quarter, according to its most recent financial report. The figure, including €50 million paid out days before Christmas, eclipsed the €181 million of dividends distributed by Energia under the first six years under I Squared’s ownership.

The company’s earnings before interest, tax, depreciation and amortisation (ebitda) jumped 27 per cent to €246.7 million for the nine months to the end of December from the same period in 2022.

Ebitda in the wind generation business declined as a result of lower energy prices and wind volumes, while earnings in its gas-fired plants were hit by planned outages at the two Huntstown facilities early last year, lower utilisation of both, and a decline in power prices.

However, the customer supply unit swung to an ebitda profit of €128.7 million from a loss of €143.8 million as a result of higher margins. Earnings in this division had been squeezed over the two previous years by a sharp spike in wholesale power prices following Russia’s invasion of Ukraine.

Energia had a total debt of €876.4 million, including bonds and project finance facilities, at the end of December. However, its €385 million of cash and cash equivalents reduced net debt to €491.4 million.

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