Mainstream’s stock market IPO off the table amid financial woes in Chile

Chile’s leftist president Gabriel Boric this week called a referendum in December on a proposed new constitution to replace a Pinochet dictatorship-era charter from 1980.

Following the public’s rejection last year of Boric’s progressive text that prioritised things such as the climate, gender parity and rights for indigenous communities, a rewrite has been drawn up by a more conservative bunch. It proposes tougher border controls, a prosecutor’s office for organised crime and tightening of the country’s already restrictive abortion laws.

Boric, politically bruised by last year’s plebiscite, may not be a fan of the latest effort. But he’ll have to live with it, if passed.

He’s not the only one uneasy with a Chilean legal document.

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Dublin-based Mainstream Renewable Power has racked up more than €1.2 billion of pretax losses since the start of last year amid charges against assets in Chile as agreements signed in 2016 have turned sour.

Founded by businessman Eddie O’Connor and taken control of by Norwegian group Aker Horizons in 2021, Mainstream won contracts in Chile to develop 1.4 gigawatts (GW) of wind and solar energy projects.

Power purchase agreements with local power distribution companies mean where its plants, primarily in northern Chile, are committed to delivering power to clients in the mainly high-demand central part of the country – come wind, sunshine or neither.

[ Mainstream Renewable to cut almost third of costs after €1.1bn of losses ]

To fulfil contracts, it has often has to buy power on wholesale – or spot – markets in the high-demand areas, where prices have been high in recent times. If Chile had properly functioning electricity transmission and storage systems, this wouldn’t be a problem. But it doesn’t.

It has resulted in Mainstream posting an average loss before interest, tax, depreciation and amortisation of €45 million per quarter in the five quarters to the end of June, according to SpareBank 1 analyst Velte Wilhelmsen in Oslo.

While it was hoped an easing of Chilean spot electricity prices in the third quarter of this year would lead to a significant improvement in earnings, it didn’t. Aker Horizons reported last week that Mainstream posted a €36 million loss for the period.

Mainstream has booked the equivalent of €780 million impairment charges against Chilean assets in less than two years.

Despite the current challenges, Mainstream ‘will navigate the current market challenges while strengthening its position for future growth’

The market’s problems have also led to the insolvency of two other overseas-owned green energy firms, Maria Elena Solar and Ibereolica Cabo Leones.

Mainstream moved in July to restructuring debt at two of Chilean units. A deal is expected to be completed imminently.

Mainstream chief executive Mary Quaney has also drawn up plans to cut more than €45 million of annual costs at Mainstream, the equivalent of a 30 per cent of running expenses, and narrowed its immediate project development focus.

Global renewable energy stocks have slumped by 35 per cent in the past 12 months as the sector has been dogged by a spike in long-term interest rates, inflation and supply-chain bottlenecks.

Aker Horizons has slumped by more than 70 per cent, driven by issues at Mainstream. Wilhelmsen at SpareBank 1 says the market is valuing the Norwegian group’s 58.4 per cent stake in Mainstream at close to zero, if the group’s valuations on other units are to be accepted. “Whether or not there will be any value left in Mainstream is currently difficult to tell,” he said.

Analysts at Norwegian investment bank Clarksons Securities said they “expect the markets to be in disarray about how to value Mainstream until a restructuring in Chile is completed and auditors verify accounting figures after new year’s”.

Either way, the mooted separate initial public offering (IPO) of Mainstream within three years of the May 2021 Aker Horizons deal is well off the agenda.

Clarksons analyst Roald Hartvigsen said Mainstream could still raise capital for growth from its parent.

“But we believe carving out and selling parts of the development portfolio is a more graceful approach,” he said.

Mainstream has a total wind and solar development pipeline of 19.4GW, spanning Chile, South Africa, the Philippines and Vietnam.

Aker Horizon’s original deal to buy 75 per cent of Mainstream valued the company at as much as €1 billion, including an earnout of €100 million that was due this year, subject to certain targets being met. Selling shareholders – including almost 600 Irish high-net-worth individuals that backed O’Connor when he set up the firm in 2008 – were told last year that the deferred amount would not be paid as targets missed.

O’Connor and Irish investors that rolled over some of the proceeds from the 2021 sale into a 25 per cent stake saw their holding diluted last year to 16.5 per cent as Japan’s Mitsui invested in the company.

Despite the current challenges, Mainstream “will navigate the current market challenges while strengthening its position for future growth,” the spokesman said. Investors in its parent remain to be convinced.