Canada will be home to a massive new global green energy player after Brookfield Asset Management Inc . merges its wholly owned hydro and wind assets with those of a publicly traded renewable income fund.
The new entity will combine Brookfield Renewable Power Fund , which mainly owns power plants in Canada and the northeastern United States, with BAM's own, much larger portfolio of wind and hydro assets in Canada, the U.S. and Brazil. Together, the new Brookfield Renewable Energy Partners L.P. will hold $13-billion in assets and trade on the Toronto Stock Exchange, and eventually seek a listing on the New York Stock Exchange.
The scope of the new company will outstrip all other Canadian-based green energy players. Other pure-play renewable companies based in Canada, such as Boralex Inc., Innergex Renewable Energy Inc. and Alterra Power Corp., will pale in comparison to BREP, which will have a market capitalization of more than $6-billion.
The combination "creates a global growth vehicle," said Richard Legault, chief executive officer of Brookfield's power operations. "[It]is positioned to be one of the premier renewable businesses in the world," he told analysts on a conference call.
And unlike other large renewable companies based in France, Spain and Italy, BREP will be highly concentrated in stable hydro power projects, which will generate about 86 per cent of the company's power. Wind projects make up most of the balance. Hydro tends to be less controversial than other renewables, and usually receives longer contracts from power purchasers.
As well as 179 existing power facilities currently generating 4,800 megawatts of power, the new entity will hold about 2,000 MW of development projects. About half of these are wind projects under construction or on the drawing board in Canada.
Overall, about 40 per cent of the company's business will be in Canada, 40 per cent in the United States and 20 per cent in Brazil.
Mr. Legault said that the new company will have the clout to raise substantial amounts of money for acquisitions and expansion, while providing investors with "an attractive combination of yield and growth." The company said it will initially set its annual distribution to $1.35 per unit, up from the existing income fund's level of $1.30. The fund's unitholders will get one unit in the new company for each one they already hold.
When the rearrangement is complete. BAM will own about 73 per cent of the new company and the unitholders of the existing fund will own about 27 per cent. BAM currently owns about 34 per cent of the existing fund.
Murray Leith, director of investment research at Odlum Brown Ltd. in Vancouver, saidthe consolidation of Brookfield's green assets into one relatively simple entity is a "win-win" for both the parent company and the fundholders.
"It creates a fund with very stable and attractive attributes," with long-term contracts and strong cash flows, he said. Because the new company will be so big and stable, it will attract investors who might be leery of investing in smaller renewable energy firms. For BREP, that means it will be "easy and cheap for them to raise capital," he said.
Cash-strapped governments will increasingly be looking for large private sector partners to help in developing renewable energy projects, and BREP will be "ideally positioned" to get that kind of work because of its track record, Mr. Leith said.
The consolidation will need approval of two-thirds of the unitholders of the existing fund, and it must also get the nod from bondholders and owners of preferred shares. Brookfield hopes to close the deal in the fourth quarter.
Investors appeared to like the proposal, pushing the price of the existing fund's units up more than 6 per cent on the TSX Tuesday.