Quebec — Innergex Renewable Energy and Hydro-Québec announced the creation of a strategic alliance that will allow both corporations to accelerate their respective growth strategies and mutually benefit from their complementary skills and knowledge. Innergex and Hydro-Québec will combine forces to form a new world-class alliance in renewable energy.
This Strategic Alliance is well-positioned to leverage the strong Québec know-how in renewable energy and power grid management into global opportunities.
The Strategic Alliance between Innergex and Hydro-Québec will target specific strategic investments for their mutual benefit. Targeted areas for investment include wind and solar projects with battery storage or transmission, distributed generation, off-grid renewable energy networks, and other sectors as may be agreed by both parties.
Hydro-Québec has committed an initial $500 million to the Strategic Alliance which will be entirely and exclusively dedicated to co-investment projects with Innergex.
To strengthen Hydro-Québec’s commitment to Innergex, to finance Innergex’s strong development and acquisition portfolio and to position the Corporation for accelerated growth in the years to come, Hydro-Québec has made a $661 million investment in Innergex through a private placement (“Private Placement”) of Innergex common shares at a price of $19.08 per share, representing a premium of 5.0% to the 30-day volume-weighted average price as at February 5, 2020. With this Private Placement, Hydro-Québec is now a key strategic investor in the Corporation holding 19.9% of the issued and outstanding common shares on a non-diluted basis.
The Strategic Alliance will leverage the combined expertise of both companies in renewable energy and build on their strengths to accelerate their development in North America, Latin America, and Europe. The Strategic Alliance is expected to strengthen both companies internationally, building on their shared Quebec roots, appetite for technology innovations and ambitious growth. Hydro-Québec’s top expertise, solid reputation and financial strength, combined with Innergex’s entrepreneurial culture, wind and solar development expertise, operational agility and knowledge of international markets will enable the Strategic Alliance to capitalize on opportunities to develop and grow in the renewable energy sector. Each party will commit to presenting investment opportunities in targeted sectors outside of Quebec to each other exclusively for an initial 3-year period.
“This Strategic Alliance will be a key driver of growth for Innergex and we are extremely proud to announce this long-term partnership. Hydro-Québec and Innergex share common goals and values as well as an appetite to grow in the global renewable energy sector. We are convinced that this partnership will drive both corporations to reach new heights in our fight against climate change,” said Michel Letellier, President and Chief Executive Officer of Innergex. “We are convinced that the combination of Hydro-Québec’s know-how in electricity transmission, distributed generation and battery storage with Innergex’s expertise in wind, solar and small hydro project development internationally will yield attractive growth opportunities through the Strategic Alliance. Moreover, we are pleased to welcome Hydro-Québec as a strategic investor in Innergex. The Private Placement will provide our Corporation with the capital required to finance our ongoing growth portfolio, which has expanded at an impressive pace over recent months, and will increase our financial flexibility to capitalize on future opportunities.”
Pursuant to the Private Placement, Innergex has issued 34.6 million common shares to Hydro-Québec, at a price of $19.08 per share, representing a premium of 5.0% to the 30-day volume weighted average price of common shares of the Corporation on the Toronto Stock Exchange (“TSX”) as at February 5, 2020. The Private Placement has been conditionally approved by the TSX, subject to customary conditions.
Innergex also agreed to provide Hydro-Québec with the right to nominate two candidates to Innergex’s board of directors as long as Hydro-Québec owns at least 15% of the outstanding Innergex common shares.
Additional terms of the Private Placement include registration rights, pre-emptive rights, transfer and trading restrictions, and a standstill undertaking pursuant to which Hydro-Québec agreed not to increase its stake in the outstanding common shares of the Corporation to greater than 19.9% for a period of twenty-four months following the date hereof, subject to certain exceptions and restrictions thereafter.
Innergex Use of Private Placement Proceeds
Of the $661 million proceeds from the Private Placement, Innergex expects to use $50 million to fund cash equity requirements to continue the development of its 200 MW Hillcrest solar photovoltaic project located in Brown County, Ohio. Development of the project continues to progress as expected, with project debt financing expected to be finalized in early Q2 2020. Construction was launched in January 2020 and commissioning is to be achieved in Q4 2020. The project benefits from a long-term power purchase agreement (“PPA”) secured in November 2019.
Innergex will also use $70 million to finance its previous acquisition of 125 MW of solar photovoltaic panels to allow approximately 650 MW of projects to fully qualify for the 30% US federal Investment Tax Credit (“ITC”). This investment is part of Innergex’s ongoing efforts to optimize the return of its development portfolio in the United States. Innergex has existing projects in development where it can deploy all of these panels.
Innergex expects to use approximately $275 million to fund the equity requirements related to the potential acquisition of two operating projects, one in the United States and one in Chile, for which the Corporation is currently in exclusive negotiations. These transactions, if completed, are expected to be accretive to Free Cash Flow per share from the first full year of operation following their completion. The Corporation currently expects to execute definitive acquisition agreements by the end of Q1-2020, although there is no certainty these acquisitions may occur nor as to the timing thereof.
Innergex will use the remaining $266 million, and any other remaining proceeds in the event the foregoing potential acquisitions are not completed, to fund working capital requirements and repay outstanding debts pending deployment in advanced-stage development projects, future acquisitions and other value enhancing opportunities. This includes repaying the $118 million outstanding term loan in Innergex’s Alterra subsidiary which currently bears interest at 7.9%.
A Beneficial Investment for Hydro-Québec
Hydro-Québec is proud to invest in and partner with Innergex to form a new world-class alliance in renewable energy and to continue executing on its growth strategy. The Private Placement and the Strategic Alliance with Innergex are in line with Hydro-Québec’s disciplined approach to business growth.
“Today’s announcement fits perfectly with our vision of leveraging our skills and investing in companies or projects with high potential for synergy with our business. The targets for these investments are sectors in which we excel, and this alliance will allow our know-how and our innovations to shine on a global scale”, said Éric Martel, President and Chief Executive Officer of Hydro-Québec. “Hydro-Québec has always been at the forefront of the development of renewable energy. Today, we reaffirm our role as leader of the energy transition, and we look forward to supporting Innergex’s long-term growth plans through future co-investment opportunities.”
Early Warning Disclosure
Pursuant to the Private Placement, Hydro-Québec acquired 34,636,823 common shares of Innergex, at a price of $19.08 per common share, for a total consideration of $661 million. Immediately prior to the Private Placement, Hydro-Québec did not have beneficial ownership of, or control or direction over, any common shares or other securities of Innergex. Immediately following the Private Placement, Hydro-Québec had beneficial ownership of, and control and direction over, 34,636,823 common shares of the Corporation, representing a security holding percentage of 19.9% of the Corporation’s issued and outstanding common shares.