For Aker ASA, the Norwegian industrial powerhouse that began life as a boat builder, a deal to buy Eddie O’Connor’s Mainstream Renewable Power in January 2021 was a springboard to float one of its portfolio companies weeks later.
“Combining Mainstream’s global organisation and renewable assets with Aker’s 180-year track record of building and developing industrial companies is another step in line with our long-term strategy for value creation,” said Øyvind Eriksen, chief executive of Aker ASA.
Aker Horizons, the unit going through the initial public offering (IPO), was handed Mainstream, after the group agreed to buy a 75 per cent stake, in a deal that valued the Irish business at €900 million.
A 20 per cent spike in Aker ASA’s own shares within days of the Mainstream deal suggested investors in Oslo thought it had snapped up a bargain in the wind and solar energy developer, with projects spanning Latin America, Africa and Asia-Pacific.
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But it was a moment many of the 600 wealthy Irish individuals who backed O’Connor when he set up the company in 2008 – with hopes he could replicate the stunning €1.8 billion achieved for Airtricity, his previous venture – had long doubted would ever arrive.
Theirs had been a hair-raising ride. The financial crisis battered initial plans, and for a decade the company survived by selling developments early – and on the cheap – to keep the lights on. Things finally turned with the transformational sale of a large wind farm project off the coast of Scotland for more than €600 million in 2018.
For O’Connor, who died early last year, the 2021 deal delivered a fifteenfold gain on the €30 million he had put into Mainstream. He and a handful of others rolled over a 25 per cent stake.
However, 60 cent of the small Irish investors opted to sell out entirely in 2021, rather than reinvest some money in the Aker Horizons deal – walking away with about a 500 per cent return. They were the luckiest ones.
Mainstream posted an almost €670 million net loss last year, according to results filed in the past week with the Companies Registration Office (CRO) – driven by impairment charges against assets in Chile, by far its most valuable development at the time of the takeover.
It brings total losses sustained since the deal to €1.2 billion – some €300 million more than the purchase price.
The scale of value destruction has rippled through Aker ASA – a €5 billion empire controlled for three decades by billionaire Kjell Inge Røkke, a high-school dropout who began his career as a fisherman. The group has seven listed units and affiliates spanning a range of activities from oil and gas exploration to harvesting Antarctic krill for omega-3 oils.
The disastrous Chilean venture contributed to Aker Horizons being under such financial pressure at the start of the summer that Aker ASA agreed to take over its business activities.
Eriksen, Aker ASA’s chief executive, put it bluntly in a letter to shareholders earlier this month. “The merger was a rescue that allowed Aker to stop further value erosion and secure businesses and other assets that otherwise would have been stranded,” he wrote.
Mainstream’s woes centre around Chile, where it won contracts in 2016 to develop 1.4 gigawatts (GW) of wind and solar energy projects – the equivalent of about a quarter of peak Irish electricity demand. A series of problems affecting the Chilean electricity market resulted in financial losses for a number of renewable-energy companies in recent years.
Its plants, mostly located in northern Chile, are committed to delivering power to clients at fixed rates in the country’s mainly highly populated central region. To fulfil contracts, it often has to buy power on wholesale markets in high-demand areas, where prices tend to be higher. The lack of properly functioning transmission and storage systems has exacerbated the problem.
[ Mainstream Renewable losses narrow to €325m on lower Chile chargesOpens in new window ]
It wasn’t just Chile. The 2021 deal also included the promise of a further €100 million for the sellers within two years – subject to certain conditions. That would end up being off the cards within months, however, as a result of Mainstream failing to win some renewable energy auctions referred to in the agreement.
Nor was it just Mainstream-specific problems. The S&P Global Clean Energy Transition Index has plunged by as much as 68 per cent since Mainstream was acquired, amid a spike in borrowing costs for this capital-intensive sector, soaring costs and supply bottlenecks in materials and equipment, and a slowing of governments’ green ambitions.
Heightened interest rates have also played a big role driving up impairment charges, as they make the future value of its projects look smaller today from an accounting point of view.
Mainstream wasn’t helped by Aker Horizons shoving its existing risky offshore assets into the company in 2022. These ended up being heavily written down, with the company deciding last year to exit certain projects.
Aker Horizons announced in February that Mainstream’s chief executive, Mary Quaney, was stepping down and that the company was closing its Dublin headquarters, affecting the company’s remaining 20 employees in the Irish capital. It had about 105 staff in late 2023 in Dublin.
[ Mainstream CEO to exit and Dublin office to closeOpens in new window ]
In April, Aker Horizons and Japan’s Mitsui (which acquired a 27.5 per cent stake in 2022, watering Aker’s holding down to 58 per cent), and lender DNB agreed new funding arrangements to help Mainstream concentrate on developing its pipeline of projects primarily in core markets – Australia, the Philippines, and South Africa – and continuing to work on its Chilean assets.
The company is exiting a number of noncore markets. It sold 675 megawatts (MW) of wind and solar farm assets in Colombia in April.
“The revised business plan as well as the continued support from shareholders will enable Mainstream to navigate the current challenges being experienced across the sector and in doing so position itself for growth in the medium term,” said the financial report.
Røkke once envisioned Aker Horizons spinning off Mainstream through a stand-alone IPO in time, to unlock more value for his empire.
Aker Horizons itself now faces near-certain liquidation, stripped of its business activities and down to the equivalent of less than €2 million in cash.
Salvaging value at Mainstream will require the billionaire to hold it tighter under the stronger balance sheet of his wider group – as much as he may rue its purchase.
