Market renewed: NEOEN, EDPR "tip of iceberg" of European green infrastructure financing pipeline

Data InsightECM Pulse 13 March

Market renewed: NEOEN, EDPR "tip of iceberg" of European green infrastructure financing pipeline

Renewable infrastructure funds are hitting equity capital markets as a long-awaited wave of financing finally arrives, amid market consolidation and Europe’s push towards green energy.

March kicked off with Portugal’s EDP Renováveis [LIS:EDPR] pricing a EUR 1.2bn capital raise, anchored by sovereign wealth fund GIC, as part of a EUR 20bn spending plan through to 2026. It was followed by France’s NEOEN [EPA:NEOEN] on March 7, with the announcement of a EUR 750m rights issue to finance heavy green infrastructure investment.

On March 6, Norwegian hydrogen firm Nel ASA had also priced a USD 155m-equivalent primary raise in the accelerated market.

Dealogic data reveals that renewable energy and utility companies in EMEA have already raised over USD 2.4bn through primary follow-ons as of March 10, across eight deals, beating the full-year volume for 2022 and almost above full-year volumes for 2019.

If financing deals continue at the same pace, it could be the region’s best year ever for green infra financing.

“This green equity raising will continue and this is something we have spoken about coming for a long time,” said one ECM banker commenting on a large pipeline of renewable energy infrastructure companies preparing capital raises.

Previously, 2020 had been the best year ever for renewable energy equity raises in terms of volume, but fears that the market was running too hot caused some buyers to pull back in the second half of 2021 and through 2022.

Investors are drawn again to renewable energy infrastructure firms, given their alignment with European goals on climate and sustainability. Energy infrastructure stocks provide long-term growth opportunity on a more cash generative basis than others such as tech firms and are benefitting from “surging” consumer demand for energy, particularly green, one banker added.

For EDPR to attract an investor with the stature and firepower of GIC is a marker of the scale of appetite for the sector. There has been talk of other sovereign wealth funds seeking exposure to European renewable energy assets, including those of oil-rich gulf states seeking to diversify away from fossil fuels.

There had been plenty of conversations with Middle Eastern sovereigns over equity investment in Europe, including in the renewable energy sector, but they have yet to start truly committing funds, the first banker cautioned. Should they do so, the scale of their potential investment could be incredible, he added.

A banker on NEOEN's rights issue said the transaction was just ‘the tip of the iceberg’ of European green infrastructure financing. “There is interest in these sizable deals and an appetite for renewables candidates,” he said. “It is a sign that the window is there, but investors are selective about the right neighborhood.”

Consolidation play

For issuers, meeting investor demand is only part of the story, with larger players keen to gain scale in a fractured market.

“Changing costs of financing makes equity attractive for a lot of renewable infrastructure players,” said a fourth ECM banker, adding his firm was pitching equity financing to several clients in the sector.

“You absolutely need size in this industry and, as rates rise, the costs of growth rise exponentially for smaller players making it harder for them to expand; it makes sense for larger public companies to grow through acquisitions of their assets,” he added.

This news service has suggested that pure-play renewable energy companies could become targets of large traditional energy giants looking to quickly scale up their activities in sustainable energy generation.

But several bankers speaking to ECM Pulse said that it was not unfeasible that pure-play renewable energy companies like NEOEN or EDPR could also look to acquire smaller competitors, a trend yet to take place in Europe and one that could be funded by equity.

Rising costs of debt and the scale of equity financing already exemplified by deals, both priced and announced this year, shows that being listed is now a significant advantage for renewable energy companies.

There are also plenty of renewable energy and green energy-tech firms in Europe’s IPO pipe waiting to list, including ENI’s [BIT:ENI] renewable energy and gas division Plenitude and Nucera, the hydrogen division of Thyssenkrupp [ETR:TKA].

Many of these IPO issuers have postponed a listing due to volatile equity markets and investor demands for valuation discounts. But delaying IPOs too long puts companies at a funding disadvantage in the long-term over a short-term cut in their initial valuation.

“There is a certain inherent cost the first time you go out to the market, but the benefits you have further down the line as a company in terms of market access are huge,” said the fourth banker. “Being listed enables you to be more proactive and opportunistic about raising capital and this well outweighs that initial cost you might take on your IPO valuation.”

In a land of high debt costs, the public company is king.

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