Renewable energy company Omega Energia (MEGA3) announced last Monday that British private equity firm Actis LLP will acquire 10% of its share capital for around 770 million reais, according to a material fact.
Tarpon Investimentos, which holds the majority stake in Omega, granted stock options to Actis at a price of R$13.50 per share (the day’s closing price was R$10.20). Once Actis owns 10% of the company, a new shareholders’ agreement will come into effect, making the UK company part of Omega’s controlling group.
Actis and Omega have also signed an investment commitment, whereby the renewable energy company can require Actis to invest up to BRL 850 million in it. The investment would be made through a capital increase, in which Actis will have to subscribe for new Omega shares at a price of up to R$16 per share. The capital increase could take place between October 1, 2022 and March 31, 2023, Omega said.
The announcement sent shares rising sharply in Tuesday’s session. MEGA3 assets jumped 16.57% to R$11.89.
In the same release, Omega announced that it had signed a memorandum of understanding for a potential investment of up to $500 million from an undisclosed US partner. The investment would be used to develop or acquire renewable energy projects in the United States.
Omega also said it was in the final stages of negotiations to finalize the acquisition of the rights to a wind project with a projected installed capacity of 531 MW, located in the state of Texas, United States.
For Bradesco BBI, the entry of Actis secures resources for growth and may dampen post-merger noise, increasing the perception of corporate governance.
At first glance, for analysts, this agreement seems to be positive, “Omega killing two birds with one stone”. Actis is a well-known private equity firm in the field of renewable energy and infrastructure. Having them as a relevant shareholder could help dampen the noise after the merger between Omega Geração and Desenvolvimento, analysts say.
Secondly, Omega has also secured significant equity funding (up to 850 million reais) to further develop its project timeline, which is an essential part of its history as a platform for
growth/consolidation of renewable energies in Brazil. BBI maintains a neutral recommendation and a target price of R$13, which is 27% higher than the previous day’s close.
For Credit Suisse, the capital injection is positive on first reading, but more details are needed.
“We consider the initial parameters to be positive for Omega shareholders, as the reference price of the option granted by Tarpon is higher than the current share price and the conditions of the capital increase are higher than our target price and implied dilution.In addition, the future capital injection should help grow Omega’s portfolio (funding was a concern given the difficult macroeconomic conditions) and having a new core shareholder can also be positive with alignment of minority shareholders in new investments and future capital increases,” the analysts report.
Regarding new investments in the United States, the Credit is awaiting further information on the project to calculate the IRR [Taxas Internas de Retorno] and impacts for Omega. The recommendation for the MEGA3 asset is to outperform (a performance above the market average), representing a potential upside of 43% compared to the previous day’s close.
Itaú BBA stresses that he expects a strong positive reaction, pointing out that the option to buy up to 10% of Tarpon’s stake at the price of R$13.50 per share, representing a premium of 32% from the current share price. “Given the grand price, we believe Actis is likely to buy shares in the market and will only exercise the call option if it is ‘in the money,'” the analysts point out.
Capitalization is no longer a concern, underlines the BBA. The dilution will be far less than Omega is likely to achieve in a possible follow-up, given the capitalization terms of the new deal.
“Omega is, in our opinion, one of the best allocators of capital in the renewable energy segment, with a solid history of pipeline development and promising prospects after the approval of the merger with Omega Desenvolvimento”, underline the analysts from BBA, who have a recommendation under consideration for assets.
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