Greenko Share Discussion Threads

[cyfran101] 25/4/2013 20:38

An article mainly regarding GKO wind turbines (25th April)



Excerpt below:
"The cheapest bids to supply long-term round-the-clock coal power are about 5.5 rupees (10 cents) a kilowatt-hour in Uttar Pradesh in northern India, he said. "We're selling in places wind power at 4.7 and hydro at 3 and a half. In all the states we're in our power is at or better than grid parity."

It doesn't matter how many GW you have if you are not competitive. Currently the shortfall means they'll take all power produced but in the long term when that gap is closed its good to know GKO's bids will be first pick on a environmental and economic basis.

This is why sovereign funds invest, for the present and future value.

[cestnous] 19/4/2013 09:21

Buried in an article on AIM shares.


57. Greenko
India has something of a power problem as years of rapid growth have outstripped the necessary infrastructure. That culminated in an estimated 700m people being left without power in July last year, and helped push energy shortages up the political agenda. Greenko (GKO) offers a solution - it is seeking to bridge the gap between India's energy supply and demand through a large-scale renewable energy construction programme in hydro and wind power.
Any large-scale infrastructure investment project like this always brings its risks, but Greenko is now entering a very interesting phase in its development. Generating capacity rose from 183 to 289 megawatts (MW) in the period ended 30 September, and there are ambitious plans for this to grow to 1,000MW by 2015. The company currently has 500MW-worth of capacity under construction and an additional 850MW classed as under active development. As power projects are completed, risks are receding and the investment case is becoming more attractive.
Trading results have been hampered by currency weakness, causing broker Arden Partners to trim its full-year forecasts – it now expects adjusted pre-tax profits of €13.2m and EPS of 5.8¢, rising to €17m and 8.4¢ in 2014 (from €13.9m and 7¢ in 2012). This is an investment for the long term but, if those projects can be completed on time and on budget, returns should follow. Buy. JF

[manrobert] 19/4/2013 09:07

it mentions India,s power problems and says Greenko offers a solution and is increasing its generating capacity.a long term buy.

[bones30] 19/4/2013 08:51

Manrobert, any chance of a summary?

[cestnous] 19/4/2013 08:14

Well I can't see An article in IC?

[manrobert] 19/4/2013 07:53

a buy article in IC today.

[london142241] 28/3/2013 16:12

He wrote that before the EGM notice came out.

He wrote "In other words, for GIC to make money on its investment Greenko's share price would have to rise by over 85 per cent from the current level of 140p" GIC make 18% a year then get to convert that into GKO stock at whatever the price.

[salchow] 28/3/2013 16:07

Responding to cestnous

I don't think Simon Thompson was in possession of the full facts when he wrote that article. The detail appeared later in a release dated 21.03.13. The fact is that an announcement by the company highlighted conversion at 260p when the later detail made it clear that this was certainly not the case and depended on the value of the shares on the conversion date between 2015 and 2017.

It was also disappointing that Simon's page in the subsequently printed issue of IC made no reference to GKO.

Anyway, see my previous posting, I am happy with the investment.

[salchow] 28/3/2013 15:55

If CIPL had used their £100M to subscribe for 74m shares in GKO at 135p then everything would be nice and simple. To have such a large investment from a significant investor would have convinced many people that this price was good value with additional value about to come as the funds were put to work. I think this still applies.

On the assumption they convert after 4 years when their investment is calculated to be worth £193M, if the shares are then worth 260p we are back to their original 74m shares. If the shares are worth less than 260p then they could be issued with more shares but they appear to be restricted to 29.9% of the total in any event.

If the shares in 4 years time are not worth more than 260p then CIPL may as well have had the same number of shares now. Where perhaps CIPL will benefit is if the shares are worth considerably more than 260p when I think the shares issued to them cannot be reduced below a specific number.

If this is the case then I am happy with the arrangement as I would have been had there been a placing at 135p although I welcome alternative comment from those that have taken the time to absorb the information. I do think the headline announcement of conversion at 260p was ridiculous.

[cestnous] 28/3/2013 15:46

Don't think this has been posted before. From From Simon Thompson in IC on the 18th March. I personally think the concern over dilution on this board as overdone. It certainly doesn't bother Thompson.

Buy signal flashing green

I was intrigued by last Friday's announcement from Greenko (GKO: 134p), the Indian developer, owner and operator of clean energy projects. Clearly, other investors were taken by the news of a proposed £100m investment in Greenko Mauritius by an affiliate of the Government of Singapore Investment Corporation, one of the world's leading sovereign wealth funds.
In fact, shares in Greenko surged over 20 per cent to end the day at 140p, and on massive turnover, with almost 600,000 shares traded in 185 bargains. In so doing, they have given a major buy signal in my view having completed a multi-month base formation that started in December 2011 after the company's share price found a floor at the 100p level. In fact, having tested the 100p level on no fewer than three separate occasions in the past 15 months, the base is clearly complete and a share price break-out above the previous high of 143p from October 2012 looks firmly on the cards. So not only is the technical situation very positive, but the heavy buying on Friday looks well founded, too.



New funds to accelerate development of projects
That's because the new funds will enable Greenko to ramp up the construction of its substantial power portfolio and take advantage of the attractive power opportunities in India. In fact, Greenko has just announced that it has added six new run-of-river hydro projects totalling 425 megawatts (MW) to its active development pipeline. Two projects are added to the existing hydro cluster in Himachal Pradesh and a further four projects are being added to form a new regional cluster in Arunachal Pradesh, with site work expected to start at both locations in late 2013. With this financing, Greenko is now targeting approximately 2,000 MW of operating capacity in 2018, double the target for 2015.
Greenko's existing hydro portfolio consists of three clusters, in Himachal Pradesh, Sikkim and Karnataka. The Himachal cluster contains 11 operational run-of-river hydro projects totalling 71 MW and two projects, totalling 33.6 MW, are under construction. In Sikkim, Greenko has a 96 MW project under construction, while the Karnataka cluster contains five operational run-of-river hydro projects totalling 94.25 MW and three projects, totalling 58 MW, that are under construction.
It's worth noting that Greenko's existing northern hydro projects have performed strongly, thanks to excellent hydrology, and these new projects provide a great opportunity to improve portfolio returns since they can connect directly to the high-voltage transmission network and deliver premium priced peaking power. The new projects are expected to have Plant Load Factor for net sellable energy above 50 per cent and deliver a bumper return on investment.
Highly profitable business
Clean energy projects are clearly a very profitable line of business because, in the half year to the end of September, Greenko reported a 28 per cent rise in underlying revenues (adjusted for currency movements) to €25.4m and made an adjusted cash profit of €17.7m, or a cash profit margin of 70 per cent. On an operating profit basis, this translated to half-year profits of €12.8m which, if annualised, equate to over €25m. To put that into perspective, Greenko had equity shareholder funds of €205m excluding €42m of non-controlling interests at the end of September last year, so this is not just a profitable company, but one that is enjoying high returns on capital employed. It also means that Greenko can easily service net borrowings of €184m on these projects. Balance sheet gearing is around 74 per cent.
In my view, it is both the profitability of utility scale wind farms and Himalayan run-of-river hydro projects and the growing demand for energy in India which will have appealed to GIC, a long-established investor in the infrastructure sector. The sovereign wealth fund was clearly taken by the investment case because the £100m invested converts on a one-for-one basis into ordinary shares in Greenko at a price of 260p per share subject to final adjustment between 1 July 2015 and 30 June 2017. That means the issue of 38.26m shares, or the equivalent of 19.5 per cent of Greenko's enlarged share capital on a fully diluted basis. In other words, for GIC to make money on its investment Greenko's share price would have to rise by over 85 per cent from the current level of 140p. The proposed investment is conditional on Greenko's shareholders approving certain resolutions at an EGM on 4 April 2013 but, given the price the board have extracted on this deal, we can take it as given that they will sanction this massive investment.
Trading strategy
Following Greenko's sharp share price rise on Friday 15 March, the company is now capitalised at £210m - a modest premium to book value. But with the financial firepower of GIC behind it, and the conversion of the new investment into equity at more than double the company's current book value of 118p, it doesn't take a genius to work out that as the new projects come on stream and start generating profits, there will be a significant uplift in Greenko's book value. In fact, even without factoring in the uplift in net assets from investment gains on new projects, when the £100m investment by GIC is converted into equity this would at a stroke lift Greenko's own book value to 147p a share. So, in effect, the current share price is a new base for investors since it is in effect fully asset backed.
And, following this transformational deal, I can see investors warming to Greenko's investment case once they work out the potential upside for the company which, from my lens, could easily see the company's share price rally back to between 200p and 210p in the coming months. This was the major support level that gave way 18 months ago. Needless to say, I rate Greenko's shares, on a bid-offer spread of 134p to 138.5p, a strong buy and have an end-June target price of 200p.

[london142241] 28/3/2013 14:34

Yes you are right 4 yr loan and therefore 74m shares at 2.60 is the 193m

[king suarez] 28/3/2013 13:17

london,

You are spot on, I think. This is in effect an expensive loan and I agree that the 1st announcement has probably led some investors (myself included) into believing an incredible deal had been struck!

I think it is a 4 yr loan though - Mar 2013 - Jul 2017? which I worked out as £193m to be converted.

If the company grows sufficiently that the share price is 260p or above then it would conver to 74m shares (hence the 74m GM shares issued?) or equivalent of a placing at 135p today (£100m/74m shares) which is why I believe the share price is hovering around that mark currently?

[london142241] 28/3/2013 12:35

Having read the EGM notice I agree with King Suarez. I think the deal could have significant consequences to the current holders if there are any delays in the company's growth, and it will need to be some growth to hit the targets.

Effectively GKO have borrowed £100m at an interest rate of 18% (18% IRR). They have no ability to call the loan/conversion and I would expect GIC to keep it to the end of the term 5 years, why wouldn't they at 18% a year.

So £100m after 5yrs becomes around £230m, this converts into GKO stock. So to hit at 19.9% dilution GKO must have a mkt cap of £1.15bn after the conversion. Current mkt cap is £200ish.

The caps of 29.9% are only in place because a single investors can't own over 30% without making a bid. If the conversion of £230m is more than 29.9% i believe GKO has to pay the balance in cash or it is converted in stock in the subsidiary GKO Mauritius.

I believe that the other adjustment clauses regard early conversion in the event of material breach or takeover, in which case the IRR/interest rate goes to over 25%. This I think just becomes a poison pill and would be off putting for someone when looking to take out GKO.

It is definitely a good deal for GIC it may be a good deal for GKO shareholders as they have another £100m but if the mkt cap doesn't grow very significantly then it may turn out to be very expensive in terms of dilution.

I don't think the first announcement really gave a proper summary and could very misleading.

[salchow] 28/3/2013 09:44

King Suarez

I do appreciate your efforts in looking at what has been proposed and I particularly agree with you that the introduction to the RNS was a bit misleading.

All the best
Salchow

[king suarez] 27/3/2013 18:25

salchow,

Yes, you were spot on when you essentially called it a loan, convertible into shares. That is how it should be treated.

The actual conversion could work in GKOs favour vs a placement alternative, although it could equally be a little more dilutive than an equivalent placing. It depends on several factors, and what happens between now and 2015-17!

I merely wanted to get my head around it to decide whether I expected a positive market reaction to this, or not. Since I took the trouble to analyse the agreement, I thought others might benefit from my work...

Regards
KS

[salchow] 27/3/2013 13:01

King Suarez

I don't know why you bother trying to explain! I think I was the first to point out that this was not as simple as some thought but was then derided by ntbb in his posts of 20 March! I ceased to believe in Santa Claus a long time ago and based my original comments both on what the company had published and on common sense business and investment principles garnered over a period in excess of 40 years. I remain hopeful that this will be a very good investment for me but not necessarily over the next week!

[king suarez] 27/3/2013 13:00

No, I'm afraid its not as simple as that. You really have to read the full details of the circular to understand the conversion. I think the first RNS re conversion @ 260p was a bit miss-leading by the BOD. The details are:

1) CIC get 74m GM shares for their £100m
2) Between July 2015 and June 2017 they must convert these to GKO shares, or lose them!
3) The total number of those 74m GM shares eligible for conversion depends on a) the timing of conversion, and b) the share price at time of conversion, as explained in the adjustment agreement, c) whether or not CIC would hold more than 30% of the existing GKO shares in issue following conversion.
5) The MINIMUM no. of shares to be converted to GKO shares is set at 44.6m GM shares. The MAXIMUM could be in excess of 74m shares, and this will depend on the total no. of GKO shares in issue at the time of conversion, along with those factors in point 3) above.
6) Any excess GM shares held by CIC that are not eligible for conversion are sold back to GKO for £1 in total. Any additional shares required to be converted (above the 74m issued) will be issued to CIC at a price of 100p.
7) To calculate the ACTUAL no. of GM shares to be converted you have to look at the adjustment agreement formulae, which state that the £100m equity is converted into (at least) £121m worth of GM shares per 1st adjustment (if exercised 2015, more if later - 2nd/3rd adjustment formulae), which are then divided by (The Agreed Price) to determine the actual no. of shares eligible for conversion.

The key part:

8) 'The Agreed Price' is the lower of the 5 day weighted average price preceeding excercise OR 260p (so @260p if, and only if the GKO share price is 260p or above on exercise date).

This means you take your £100m equity, you multiply that by whichever formulae is applicable per the adjustment agreement, depending on the timing of exercise, THEN you divide this value by the share price at the time of exercise (The Agreed Price), and THAT is the no. of GKO shares that CIC will be issued in a 1 for 1 exchange for their GM shares.

The minimum is 44.6m, which will occur if, and only if, the GKO share price is @260p or above when converted. The maximum is 30% of the total GKO shares in issue at the time of conversion, whatever that may be. It would be 60m shares currently, if no further shares are issued (150m shares in issue + 29m shares to be issued re resolution 3 of the circular x 30%).

It is quite complex!

Regards,
KS

[ntbb] 27/3/2013 12:28

ks, thanks, so once resolution passes and looks certain then conversion of gm into gko will be 260p?

[king suarez] 27/3/2013 11:33

ntbb,

If you read the circular document in detail (particularly the amendment agreement - this is important) you will understand that CIC are not buying the equivalent of shares GKO at 260p. See my earlier posts.

It is ONLY 'buying Greenko share for 260p right now' if the share price on conversion happens to be at 260p or greater. If not, then GM shares are converted at the weighted average price for 5 days prior to conversion.

Also, the number of GM shares that are to be converted to GKO shares will be a minimum of 44.6m (as stated in agreement) but that is only if the share price is 260p or higher at the time. As things stand, if CIC exercise the right to convert all shares on the earliest date possible then this would be c90m shares converted (see 1st adjustment clause)

£121m / 135p (The Agreed Price - i.e current share price since below 260p).

I think it is important to understand the implications of this deal, and hence why the share price is not over 200p at present.

ATB
KS

[ntbb] 27/3/2013 09:57

how about this for explanation, its clear on 4th april once its approved, gic will have their shareholding of gm shares which will convert to gko shares at 260p, now that greenko has the cash for massive expantion if by 2017 target is not met then there will be adjustment so for now its 260p per greenko shares

[ntbb] 27/3/2013 09:41

bones the way i see it is this, gic will invest £100 million into gm which is arm of greenko then gm shares convert into greenko shares at a price if 260p so ineffect gic are paying 260p per greenko shares which will happen on 4th april and greenko will get the cash the only thing im not sure is the the final adjustment and thats long long time away


"The GM Shares will in the ordinary course convert one for one into ordinary shares in Greenko at a price of 260p per share subject to final adjustment between 1 July 2015 and 30 June 2017. The initial investment is equivalent to a minimum of 19.5% of Greenko on a fully diluted basis.

-- The proposed investment is conditional on Greenko's shareholders approving certain resolutions at an EGM planned for 4 April 2013."

[bones30] 26/3/2013 11:11

ntbb, "following" means after.

[ntbb] 26/3/2013 11:08

news either this or next week before egm, substantive acceleration, sounds goog to me



"the Group expects to make further announcements on the substantive acceleration of its growth profile in the weeks following the EGM."

[bones30] 25/3/2013 13:20

"... was notified on 25th March 2013 by non-executive director designate John Rennocks of his acquisition on that same day of 37,125 ordinary shares"

- where's his trade?