Decarbonisation drives deal flow for investment bankers

Photo by Greg Baker / AFP

Decarbonisation is the buzzword driving deal flow for investment bankers up and down the scale as more companies try to improve their ESG standing and in the process improve productivity.

While Canberra plays with semantics, the real world is getting on with the business of carbon.

Skye Glenday and her team at Climate Friendly are closing in on a sale to Adamantem that follows last year’s groundbreaking partial sale to KKR of James Schultz’s Green Collar.

This was followed later in the year by Shell’s purchase of Select Carbon.

Climate Friendly, which is being advised by Martijn Wilder’s team at Pollination, started life as a unit of Macquarie Bank before being acquired by South Pole in 2012 and a management buyout in 2019.

All three firms are in the land management game, advising farmers on how better to manage their properties to boost soil carbon through regeneration and better crop management, among other initiatives.

These boost soil carbon, which produces better crops, retains more water, helps boost local rains and, with the help of these carbon offset deals, the packagers create carbon credits to sell to corporates wanting their carbon production.

A 300,000ha farm may earn 10,000 carbon credits a year, or $160,000, and the developers take a cut from the earnings.

Their hunt for development capital is just one factor in the deal that includes Infratil’s sale of Tilt Renewables, with the auction being run by Lazard.

The $2bn sale follows AustralianSuper’s $5.1bn attempt to impose a bear hug on Infratil, including by exposing the $155bn a year in conflicted funds earned by Morrison and Co’s Marko ­Bogoievski, who also runs Infratil.

The ACT government has its share of the Ararat Wind Farms on the market.

Global giant FRV has part of its Australian renewables portfolio on the market.

And BlackRock has two solar farms up for sale. In short, there are a string of deals on the market.

This comes against a backdrop of increased demand for renewables as the cost of technology falls and with it the value of some solar and wind deals.

The complexity includes measuring the carbon stored or created, and the services provided have a scarcity value.

The latter deals are largely one-off asset sales, and none of which could be called company-transforming deals, but the driving factor is to take advantage of increased demand.

Rooftop solar power is now of a scale to supply 9 per cent of all electricity deals — and throw in wind power and the percentage climbs to 23 per cent.

The renewable sales are based on the size of the farms and the quality of their offtake contracts, with aforementioned corporates looking for offset deals and to increase their level of renewable power.

The average Australian home uses about six megawatts of power each year.

Total household electricity demand in Australia at any one ­moment is 20,000 megawatts and total demand for the year is 200-plus terrawatts.

At last count, there were 8760 hours a year and all this represents the basics on which it is built.

The difference is that the average Australia solar home owner doesn’t need to know how much power he or she produces or how much it costs, but for Catherine Tanna at EnergyAustralian or Frank Callabria at Origin, they are key multiples.

Green Collar’s Schultz said the firm’s aim was to boost farm returns by better land management.

Tabcorp play

As a former investment banker, Tabcorp chair Stephen Gregg must be enjoying the fact his two corporate chairs (the other is Ampol) are both under constant takeover rumour.

Tabcorp confirmed a report in The Australian’s DataRoom column on Tuesday that Gregg had received his 52nd break-up proposal, which in simple terms means splitting lotteries from the wagering business, which last year earned $371m and trades at around nine times earnings.

Lotteries is a monopoly operator that earned $542m last year and trades at around 22 times earnings, and any investment banker will tell you demergers boost value in the long term by allowing management to concentrate on their core business.

Tabcorp shares closed up 8.8 per cent at $4.46 on Tuesday, and it doesn’t take much heroics to add $1 a share to the $9.1bn equity value of the company.

Tanarra Capital and others have long urged the Tabcorp board to consider the proposal with the obvious rider being if it doesn’t, someone else will do the maths for it.

As of the close of business on Tuesday, Gregg was well aware of the arguments, but some way off actually pressing the green light on any deal.

Step forward for QBE

QBE has taken one step forward with the appointment of Sue Houghton as Australian boss, but some concerns will linger until a full-time boss is found for the whole company.

UK-based Richard Pryce is acting chief now, but has made clear he would prefer to retire sometime soon, which means he won’t be there for the long haul.

QBE earnings are roughly split in three parts between Australia, Europe and the US, so someone with international experience is clearly favoured.

But the middle of a pandemic is not a great time to hire a global insurance executive.

Houghton comes to the Australian job with strong credentials, most recently at Westpac, which is in the process of selling its insurance assets, having sold its general insurance to Allianz last year.

Its life insurance business is also on the blocks.

Houghton has also worked to high acclaim with IAG and Wesfarmers, having started her career with KPMG in London.

She beat the highly regarded Frank Costigan for the job.

Costigan, an insurance analyst by trade, came to QBE via Youi and IAG with a strong background in personal insurance.

He was acting head of Australia pending a search for a full-time executive after Vivek Bhati left to join Link last year.

Former QBE boss Pat Regan was shown the door last year for alleged personal indiscretions.

QBE would like to grow the personal line business and would want to keep Costigan for that role.

QBE’s stock price has underperformed the market by 38 per cent last year in the wake of the shock Regan departure, record low interest rates and a string of catastrophe claims globally.

Insiders hope this year may be a turnaround one for the company, which ended last year with yet another profit downgrade.

Acting boss Richard Pryce is highly regarded by the market, but analysts will be nervous until a new boss is cemented in the job for fear he or she might take radical writedowns. The Houghton appointment is a step in the right ­direction, but she won’t assume the job until August.