Atlantica Yield PLC is considering the acquisition of a transmission project in Peru through a new joint venture formed by Abengoa SA and Algonquin Power & Utilities Corp.
Algonquin completed in March the purchase of a 25% stake in Atlantica for $608 million from Abengoa. In April, Algonquin announced plans to acquire an additional 16.5% ownership interest in the yieldco in a deal valued at $345 million.
Also in March, Algonquin completed the formation of AAGES, a joint venture with Abengoa to develop clean energy and water projects, under which Atlantica Yield will have the right of first offer, or ROFO. The first such project AAGES has an exclusivity agreement to potentially acquire is ATN3, a 220-mile electric transmission line in Peru with a 30-year contract in U.S. dollars.
"If AAGES did secure the project, once in operation, ATN3 could fit very well in our portfolio. As you know, this is a country where we own transmission lines, where we have critical mass already and where we would benefit from asset and operational synergies," Atlantica Yield CEO Santiago Seage Medela said on the company's first-quarter earnings call May 14.
Seage Medela declined to provide details on what AAGES projects might be next in the pipeline, saying, "we are very happy with the collaboration."
Peru, Mexico and Chile represent the "key countries" for Atlantica Yield in terms of growth opportunities.
"I would never say that competition is too low anywhere. But clearly, a different environment from what we see in North America," he said. "So we believe that transactions in the region you need to fight for them and you need to work a lot, but you can do transactions at numbers that make sense. And actually, we believe that you can achieve accretive transactions in good projects with long contracts in the region."
Between Atlantica Yield's existing ROFO pipeline with Abengoa, its new ROFO pipeline with AAGES and other opportunities, and planned improvements within the current portfolio, the yieldco is guiding toward 8% to 10% compound annual growth for its distribution per share through 2022.
Seage Medela asserted the company's strong balance sheet will enable this trajectory. The company reported net project debt at the end of the first quarter was $4.93 billion and net corporate debt was $505.9 million, resulting in a net-corporate-debt-to-CAFD-pre-corporate-debt service ratio of 2.3x.
