Is SunEdison’s deal to acquire Continuum Wind Energy in trouble?
3 min read 22 Oct 2015, 12:13 AM ISTThe renewable energy firm is under pressure to reconsider recent deals as it looks to cut costs and consolidate
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Mumbai: SunEdison Inc., the world’s largest renewable energy company, is under pressure to reconsider recent deals, including its plan to acquire Continuum Wind Energy Ltd, as it looks to consolidate its business globally and cut costs after a series of big acquisitions.
In its home market, SunEdison has been hurt by a slump in its share price following the initial public offering (IPO) of subsidiary Terraform Global Inc. in July, which did not raise as much as expected. Since then, SunEdison, which has announced acquisitions of over $6 billion in less than a year, has had to announce job cuts and has backed off on other deals.
Earlier this month, SunEdison said it would cut 15% of its 7,260 strong workforce. Within days, it also terminated a $700 million deal to buy renewable energy firm Latin American Power, which operates assets in Chile and Peru.
US financial news website, TheStreet, reported that another deal, SunEdison’s planned acquisition of US-based Vivint Solar Inc., is in trouble.
Up to Tuesday’s close on the New York Stock Exchange (NYSE), the company’s shares had fallen 71% in the last three months (20 July to 20 October).
“SunEdison is potentially having cash-flow issues," said Gordon Johnson, an analyst at New York’s Axiom Capital Management.
These could hit its India plans.
SunEdison is also likely to back out of a deal to buy Singapore-based Continuum Wind, which has assets in India, two people familiar with the matter said.
SunEdison had announced the acquisition in June this year for an undisclosed amount. Continuum Wind, a company focused on wind energy generation, is controlled by Morgan Stanley Infrastructure (MSI), an infrastructure-focused private equity fund. While the firms had not disclosed the deal value, a 2 June report in The Economic Times had pegged the deal value at between ₹ 3,700-3,900 crore, making it one of the largest renewable energy deals in India.
A spokesman for SunEdison declined to comment when reached in the US on phone. Continuum Wind founder and chief executive Arvind Bansal did not respond to queries. An email query sent to Morgan Stanley Infrastructure on Tuesday remained unanswered.
Morgan Stanley had acquired majority stake in Continuum, founded by Bansal, an investment banker, and Vikash Saraf, a former director of Essar Group.
In July, SunEdison raised $675 million by selling 45 million shares at $15 a share in its subsidiary TerraForm Global. This was lower than the expected range of $19-$21 a share.
The company would have funded the Continuum buyout with the money raised in this IPO, the two people said, explaining that the shortfall in fund-raising and the subsequent fall in the company stock price may make it difficult for the firm to fund the deal.
Continuum Wind owns and operates 242 megawatts (MW) of wind power plants in Maharashtra and Gujarat, besides a 170MW wind power unit under construction in Madhya Pradesh. It has more than 1,000MW of wind power plants in development across six states in India, said a note from SunEdison in June.
SunEdison also has a joint venture (JV) with Adani Enterprises Ltd to set up a $4 billion solar photovoltaic manufacturing facility in Mundra, Gujarat. On 25 August, Mint reported the JV may come unstuck. In a disclosure to the exchanges following the report, Adani Enterprises said if there is “any development which requires disclosure", the firm will inform the exchanges.
Earlier this month, SunEdison said it would simplify its business structure by removing duplicative activities created as a result of recent M&A (mergers and acquisitions) activities and business growth by centralizing its global business development and operations.
“We expect SUNE (SunEdison) to rationalize overlapping functions between the multiple acquisitions and reduce its global footprint, particularly in emerging markets, in order to be more focused on its core markets (the US, Latin America, India and China). We believe the move is necessary to control costs," Needham and Co. analysts Edwin Mok and Kimberly Donovan wrote in their 8 October report.
Mok and Donovan said SunEdison’s restructuring efforts to reduce expenses are encouraging, but liquidity will remain an investor concern.
As on 30 June, the company had a debt of $10.8 billion.
If SunEdison backs out of the Continuum deal, it will be a rare instance amid an increasing number of takeovers and JVs in the Indian renewable energy sector. In recent months, several multinationals, including Russia’s OAO Rosneft, US-based First Solar, China’s Trina Solar, SoftBank, Taiwan’s Foxconn Technology, Italy’s Enel Green Power, have made announcements to invest in the Indian renewables sector.
The National Democratic Alliance government has pushed renewable energy to the top of its energy security agenda. The country needs as much as $250 billion to meet its target of installing 100 gigawatts (GW) of solar power and 60,000 megawatts (MW) of wind power by 2022.
