Greenko Share Discussion Threads

[sportbilly1976] 24/6/2015 15:38

A few late rpeorted buy trades now coming through - 2x 58k and a 70k one too

[seball] 24/6/2015 15:22

From IC in May. ST reckons 100p conversion.


Shares in Aim-traded shares in Greenko (GKO:70p), the Indian developer, owner and operator of clean energy projects, have endured a roller coaster ride since I initiated coverage at 138p ('Buy signal flashing green', 18 March 2013).

Having hit a high of 180p at the end of September 2014, Greenko's share price fell steadily thereafter and I subsequently downgraded my view to hold when the price was 104p after it became apparent that the operational progress the company has been delivering is being undermined by its capital structure ('Small cap updates', 31 March 2015). Clearly, some investors headed for the exit as Greenko's share price declined a further 20 per cent to 82.5p by the time analysts at brokerage Investec released a note in mid-April with a 150p revised target price.

In that note to clients, Investec's utilities analyst Harold Hutchinson noted: "We believe the recent share sell off reflects some shareholders' concern on Greenko's financing structure. This has been magnified by the potential conversion of the Government of Singapore (GIC) (which invested £100m in Greenko Mauritius in 2013) and Global Environment Emerging Markets (invested in 2009) minorities into ordinary shares in the near future. The original GIC investment at a subsidiary level offered re-assurance to ordinary shareholders in terms of capital commitment. The need now is for Greenko's capital structure to be simplified and organised to ensure a recovery in confidence of all shareholders."



Calculating the level of potential dilution

The issue of dilution to existing shareholders is the one I raised in my article at the end of March. That's because GIC has the right to exchange its 17.38 per cent interest in Greenko Mauritius into a minimum of 44.8m Greenko ordinary shares anytime between 1 July 2015 and 30 June 2017. However, the number of new ordinary shares to be issued is capped to prevent GIC from owning more than 29.9 per cent of Greenko's enlarged ordinary share capital. Greenko currently has 155.8m shares in issue.

So with Greenko's share price significantly lower than at the time when GIC made its original investment, then GIC could end up owning a minority interest in Greenko Mauritius as well as being issued with a slug of new equity in Greenko. Global Environment Emerging Markets (GEF) has the right to exchange its 14.09 per cent interest in Greenko Mauritius into a minimum of 29.1m Greenko ordinary shares anytime between 1 July 2015 and 30 June 2017.

To put the interests of both GIC and GEF into some perspective, Investec calculate that GEF's interest in Greenko Mauritius would convert into 75m new Greenko shares based on its present value of $113m (£75m) and using a share price on conversion of 100p; and 70 per cent of the GIC interest would be satisfied by the issue of 99m new Greenko shares based on a present value of its investment of $210m (£140m). But because of the 29.9 per cent shareholder cap, GIC would also retain an interest in Greenko Mauritius worth £40m. As a result, Investec have factored in a raised share count of 329m, up from 156m currently, assuming conversion occurs on 1 January 2016 and a share price of 100p being accepted by both GIC and GEF. This is significantly higher than Greenko's current share price.

It's possible that both GIC and GEF would accept conversion of their minority interests under these terms as it would enable Greenko to simplify its balance sheet and funding structure, remove the issue of dilution that is undermining sentiment, and enable investors to focus on the strong operational progress the company is actually making. Greenko's operating profit is expected to more than double from $55.6m in the 2014 fiscal year (nine month period due to change of year-end), to $121m in 2015, and $174m in 2016, according to analysts at both brokerage Arden and Investec.



An issue that needs addressing

The issue of GIC's and GEF's minority interests needs sorting out as soon as possible because the more Greenko's share price falls, the greater the potential dilution to its existing shareholders of which the top 11 institutions and investors control almost 80 per cent of the share registrar.

Clearly, a highly dilutive share issue is not in their interests and they should be doing everything in their power to avoid this. That's because the financial liability from these minority interests is now almost double Greenko's market value of £110m as a result of the slide in its share price, so unless Greenko's board can restore some confidence in its share price then existing shareholders face being diluted by well over 50 per cent.

That said, it's in the interests of both GIC and GEF to reach a compromise which in turn would enable Greenko's shares to re-rate to a more sensible valuation without investors fretting about being diluted any further. Also, it makes no financial sense for them to undermine the ability of Greenko's board to progress with its expansion plans as GIC and GEF are still only minority shareholders in Greenko Mauritius, owning less than a third of that subsidiary between them.

In the event of a compromise being reached, I feel there is upside for existing shareholders. That's because after factoring in a December 2015 year-end net debt figure of around $920m, an increased issued share capital of 329m shares - assuming of course that GEF and GIC accept conversion terms around 100p a share - then Greenko's enterprise value of $1.5bn (based on a share price of 100p) would still be only 8.5 times fiscal 2016 operating profit estimates and 7 times likely cash profits.

So if you followed my earlier advice I would hold onto Greenko's shares ahead of this summer's annual meeting and interim results in September as I believe that a positive announcement from the company's board on a resolution to the issue of the GIC and GEF minority interests could prove a watershed for its battered share price. It's worth noting too that the shares are now in extreme oversold territory (the 14-day relative strength indicator has a reading of only 20). Hold.

[seball] 24/6/2015 15:12

From the RNS yesterday

'The Company is in discussions to find a solution at a subsidiary level which supports all stakeholders and the business.'

Many stakeholders have averages well over £1 a share. They will find a SOLUTION that supports stake holders and business. This is a screaming buy at this price IMO .

[sportbilly1976] 24/6/2015 13:58

how many pi's also have dma to account for the AT trades?

[marvelman] 24/6/2015 13:19

Again a lot of volume just for PI's..surely must be a bigger player or players accumulating.

[marvelman] 24/6/2015 13:10

Yes seball. I could not buy in volume and sometimes not at all.Patience and resiliance to back up confidence.

[sportbilly1976] 24/6/2015 12:48

chance for those who didn't buy yesterday to get in cheaper today perhaps?

[seball] 24/6/2015 12:47

This will be back above 60p tommorow if not by end of trading today. Tree shake looking for stop losses as market makers were short on shares.

[hounddog10] 24/6/2015 12:35

Thanks for that Hutchpod. I guess it still a little too much in the future to have caught people's attention yet. But really the first commissioning date is only 10 months away if they hold to timetable - although it will be rolled out over a couple of years. It would be a big increase to capacity and I would guess solar is relatively straightforward to install. Also it appears to be their intention to not sell this power to the state electricity companies but direct to companies. This should give them better pricing and also better cash flow. The state electricity companies are often awful payers relying on retrospective tariff adjustments and disputes to string out payment. At least with companies if they don't pay you can cut them off.

[marvelman] 24/6/2015 12:02

Profit takers..and that seller still no doubt. From now on in until the settlement I am topping up at my cash investment target. This will surely as night follows day reflect its true value which is at least double this level.

[hutch_pod] 24/6/2015 10:40

Fair point hounddog, a bond would also make sense.

Divmad i was, for ease of calculation, focusing on the RNS wording of a solution at subsidary level.

There is a decent slide on solar in the current investor deck, picking out 3 potential sites (650MW) with commissioning ranges from Apr 16 to june 18, and looking at co-location of wind and solar to enable transmission infrastructure sharing. Exciting! and not in the Investec forecasts as far as i can tell.

[seball] 24/6/2015 10:35

Cestnous, Greenko are also looking to return cash to shareholders. Good luck

The Company has operating assets of 715 MW and is well on track to reach the targeted 1,000 MW in 2015. This, together with our reduced borrowing cost and improved debt repayment profile, will provide free cash flow to contribute to future growth projects. However, the Board also recognises that this cash flow should contribute to improved returns to our shareholders in the coming years. As a result, when our half year results are announced in September 2015, and our major construction projects are essentially complete, we will give active consideration to the most appropriate routes to return cash to shareholders

[seball] 24/6/2015 10:21

Hounddog the gains in solar could be huge. Can't see a problem in bringing in a partner.Good luck





Listed on the AIM of London SE, Greenko, the Hyderabad-based company, has recently initiated a process to diversify into solar power generation.
Hyderabad, May 3:
Renewable energy independent power producer Greenko Group is all set to foray into solar power generation and plans to develop 500 MW within 12-18 months, by co-locating solar and wind farms. It has initiated the process of identifying global strategic partners for this sunrise sector.
Listed on the AIM of London Stock Exchange, Greenko, the Hyderabad-based company, has recently initiated a process to diversify into solar power generation, with a holding company. The company’s current portfolio with assets of about 800 MW spans wind, hydel, gas and thermal. It is on course to nearly double it to about 1.6 gigawatt-mark by March 2016. Anil Kumar Chalamalasetty, CEO and Managing Director of Greenko, told Business Line, “Solar energy business will be extremely complimentary to the wind energy in particular, where the distribution and evacuation system is already established and there is land availability to rapidly develop these solar units.” Having developed utility scale wind farms of 50 to 100 MW capacity in several States , he said: “We believe that these sites are also suitable for development of solar PV farms. There is evacuation line of 220 KV in these farms, and land is no issue, andabundant sun is ideal for solar farms.
“We are not looking at any power purchase agreements with State utilities. We will implement the solar photovoltaic power projects. The proposed 500 MW capacity will come up in five to six locations of about 100 MW each at the existing wind sites,” he said. “As in the case of wind farms, we have developed with suppliers such as GE and Gamesa. Greenko is in the process of selecting global vendors for the solar PV projects. Given the short gestation of solar PV projects and the availability of land, we are looking at 500 MW in the first phase,” Chalamalsetty said. On the mode of funding for the projects, he said, “We have adequate funds which we had raised and if necessary, we would look at various options. At present, I would not like to comment on the funding aspect.”
The company is in parleys with various State Governments, including Andhra Pradesh, Telangana, Karnataka, Maharashtra, Rajasthan where it has wind power projects and where it is seeking to develop new solar PV assets.

[cestnous] 24/6/2015 10:06

That is really interesting Hounddog. Maybe I'll be staying in this longer than I thought.

[divmad] 24/6/2015 10:05

Hutch_pod, why would you assume no equity dilution as part of a deal?

[hounddog10] 24/6/2015 09:57

Yes that is an interesting thought. The equity part of any deal at a sub level won't go beyond 49% or otherwise they would lose control. So I would have thought cash or a straight bond will be where they are heading for the majority of buying out the quasi equity guys.

One of the really interesting operational aspects of GKO at the moment is their intended move into solar presumably primarily at the wind sites. As they point out they have the land and the grid connections already in place and I should imagine it would then be pretty quick to throw up a solar farm. Solar panel prices are meant to halve in the next five years and any labour needed in India should be very cheap. Modi has recently thrown his authority behind a big expansion of solar power in India. I don't know how much solar is assumed in Investec projections.

[sportbilly1976] 24/6/2015 09:52

Cantor's reiterate their share price target of 82p and buy rec this am.

Lets see what Investec come out with, as theirs was the more optimistic price at 150p in April

[qs99] 24/6/2015 08:47

thanks Hutch Pod really useful. Let's hope management can do better than that!

[hutch_pod] 24/6/2015 08:40

For fun i worked out a scenario where minority interests increase from 42% to 50% as part of the deal.

This gives 2016E attributable net income of $26m using Investec, ie 50% of $52m (which seems to be less than the average quoted in DLook). Maintaining the share count gives EPS of 16.72c.

At £1.20, that would be a 2016E PE of 11.5.

[seball] 24/6/2015 08:21

Looked like an attempted tree shake this morning but there is too much buying pressure. Strong Buy

[hutch_pod] 23/6/2015 20:14

Let's see management prove their worth by agreeing a decent deal at subsidiary level (as the RNS suggests), removing the parent company dilution 'overhang', and allowing the earnings growth to properly shine through both at an income and EPS level.

[seball] 23/6/2015 18:31

The main reason the share price had been sold down was the fear of dilution. That will now hopefully be lifted with the next news and a more sensible share price can be reached. Operationally Greenko are performing very well. Good luck

[mark_jm] 23/6/2015 17:46

Does anyone understand the implications of the recent rns?

[seball] 23/6/2015 16:42

Sportbilly1976 from the last results. They will pay one in September I beleive.


The Company has operating assets of 715 MW and is well on track to reach the targeted 1,000 MW in 2015. This, together with our reduced borrowing cost and improved debt repayment profile, will provide free cash flow to contribute to future growth projects. However, the Board also recognises that this cash flow should contribute to improved returns to our shareholders in the coming years. As a result, when our half year results are announced in September 2015, and our major construction projects are essentially complete, we will give active consideration to the most appropriate routes to return cash to shareholders