MPC Caribbean proposing reorganisation
Shareholders of the listed company MPC Caribbean Clean Energy Limited (MPCCEL) will vote at the upcoming May 30 annual general meeting (AGM) on a reorganisation which would see the assets of MPC Caribbean Clean Energy Fund LLC (MPC Fund) transferred to the company and new shares issued to MPC CCEF Participation GmBH.
MPCCEL is a Barbadian international business company (IBC) that invests in the Caymanian MPC Fund which owns various wind and solar renewable energy assets spread across the Caribbean region. This structure means that MPCCEL only recognises a US$28.58-million investment in the MPC Fund but doesn’t generate direct cash revenue with the sole line item being the unrealised fair value gains or losses from the value of its MPC Fund investment.
As a result, MPCCEL has not generated positive operating cash flow since it began operations but relied on cash flow from financing activities in the form of a 2018 initial public offering (IPO) on the Jamaica Stock Exchange (JSE), Trinidad & Tobago Stock Exchange (TTSE), a 2020 renounceable rights issue and a 2020 non-voting convertible promissory note from RBC Trust (Trinidad & Tobago) Limited. Thus, its balance sheet has only grown to US$28.75 million, which is far from the initial US$50-million target it set to raise in its IPO.
However, this structure is set to change going forward if shareholders approve the proposed reorganisation which would give MPCCEL direct economic interest in the assets rather than owning a stake in a fund. This means balance sheet and income statement recognition with shareholders and observers able to gauge the business activity of MPCCEL.
“The market struggled to understand what MPC is doing and what is MPC Caribbean Clean Energy standing for. One of these reasons was because there was this intermediate layer between the assets and the listed company. Because of certain IFRS [International Financial Reporting Standards] rules, revenue recognition and cost recognition, there was not a lot happening neither on the P&L nor the balance sheet of the company. From time to time, we got from you or from other people requests or concerns that there’s limited transparency. The limited transparency is a result that the listed entity is not the direct owner of the assets,” said German managing director of MPC Renewable Energies GmbH Martin Vogt in a Wednesday call on the reorganisation.
MPCCEL currently owns 85.69 per cent of the MPC Fund with the remaining 14.31 per cent owned by MPC Team Investment LP through a US$5-million investment. MPC Team Investment LP is owned by MPC GmBH. According to resolution six of the AGM notice, 5,278,319 additional Class B shares of MPCCEL would be issued to MPC CCEF Participation GmBH at a price of US$0.877. This translates to a US$4.63-million valuation which would have been informed by an independent valuation from PWC Barbados. It would also push MPC Capital AG’s indirect stake in MPCCEL from 3.19 per cent to 22.16 per cent and the number of Class B shares from 21,666,542 units to 26,944,861 units. These additional Class B shares would be converted to stock units and registered on the JSE and TTSE. The reorganisation is expected to be complete by the fourth quarter of 2023.
While this in principle would mean a dilution of existing shareholders, Vogt highlighted that no economic value would be lost since MPCCEL always had an interest in the MPC Fund.
When asked why the move from the current structure to the Barbadian IBC owning all the assets, Vogt highlighted that the cost of services in the Cayman Islands is consistently going up with the Cayman Islands also coming under scrutiny by the European Union and United States around transparency and reporting requirements. The current reorganisation will result in estimated savings US$200,000 to US$300,000 per annum and US$2 million — US$3.5 million in administrative costs over the next decade.
He further highlighted that the advisory committee will be enhanced with shareholders who own more than 15 per cent of the Class B shares having a seat on that committee which in turn can appoint an independent director to MPCCEL’s board of directors. This is all part of the bid to improve transparency and corporate governance for MPCCEL.
With regards to future capital raises, Vogt also explained, “It goes away from a closed end regulated fund structure into an open end, transparent, governance driven, future corporate. It doesn’t mean that we have any plans tomorrow to go to the market for a capital raise. Absolutely not, but we want to make the company ready for that step if the board of directors in the future determine that it would like to grow the company.”
The restructuring will see the MPC Fund de-registered by the Cayman Islands Monetary Authority, liquidated and wound up. MPC Clean Energy Limited, a Caymanian exempted company, which currently holds the Class A share will also be dissolved with the share to be transferred to MPC Renewables Panama SA which will enter into two agreements with MPCCEL. One is a management services agreement where MPC Panama will act as the manager and a transaction management services agreement where MPC Panama will provide transaction management services in support of MPCCEL’s ownership and operation of renewable energy projects.
The MPC Fund currently has a 34.4 per cent interest in the Paradise Park, Westmoreland, which is a 51.5 MWp solar PV farm; a 50 per cent joint venture interest with Ansa McAl in CCEF ANSA Renewable Energies Holdings Limited which owns the Tila Wind Corporatión S A that consists of a 21 MWp wind farm in Costa Rica; 100 per cent interest in San Isidro which is a 6.4 MWp solar park in El Salvador and a 72.794 per cent interest in Electronic JRC SRL which owns the 33 MWp asset Monte Plata Phase I in the Dominican Republic. These assets generated US$21.62 million of revenue in 2022 from 203.87 GWh of energy generated. The EBITDA (earnings before interest, tax, depreciation and amortization) was US$15.46 million with the pro-rated EBITDA at US$5.09 million to reflect the interests in the assets. MPCCEL recorded a US$2.19 million loss in 2022.
If the weather phenomena known as La Niña becomes El Niño in 2023, Vogt believes that the opportunity for a dividend payment can materialise in early 2024. The US$0.089 dividend totalling US$1.02 million in September 2019 is the only dividend paid to date. The companies JSE share prices hover at J$83/US$0.59 while the TTSE price is at US$0.98. This is below the IPO price of J$130/US$1.
“So, the benefit of the savings, let’s say for this year, I think you can consider as beating eaten up in order to execute this reorganisation. This doesn’t change our view that 2024, we will be ready for first distribution if the sun is shining more than the last two or three years. We also believe that there’s still a great opportunity in the region for renewable energy,” Vogt added.