Market fears that Acciona may increase its debt to finance an unprofitable business

Spanish infrastructure group Acciona is increasing its shareholding in German wind turbine manufacturer Nordex. First it will buy in the first stage 10% of Nordex for € 99M – raising its stake to 36.3% – and subsequently will launch a takeover bid for the rest of the share capital to € 10.32 / share.

The operation details must be sent to BaFIn (the German market watcher) within 4 weeks after the announcement. The period of acceptance of the takeover bid is a minimum of 4 weeks and can be extended up to 10 weeks. Acciona expects the operation to be neutral in terms of BPA in 2020 and relutive (positive impact on BPA) since 2021. The purchase of the initial 10% of Nordex does not alter the group’s objective of maintaining a Net Debt / EBITDA ratio of less than 4 , 0x by the end of the year (3.7x as of June 2019).

In 2020, when the company has to pay an additional € 600M, Acciona has stated that it is considering some measures that could be implemented next year to prevent the Net Debt / EBITDA ratio from exceeding 4.0x. Regarding the strategic sense of the operation, Acciona believes that Nordex needs to strengthen its capital to meet its production commitments, with a portfolio – between new megawatts and maintenance – of around € 7Bn.

The market reacted negatively to the announcement of this operation by Acciona and its stock suffered a 5% drop.

According to Bankinter analysts, Nordex is not currently generating benefits. The turbine company published losses of € 50 in the first half of 2019 with an EBITDA of € 17M (-20%). Small turbine producers are suffering from price competition from large producers. The market fears that Acciona will increase its debt to finance a business that does not offer clarity about the turn towards profitability. The market has interpreted this operation as a defensive movement to protect your investment in Nordex. A waiting period is now open to see if Nordex is capable of straightening its situation and recovering profitability with this injection of Acciona funds.

“We see value in Acciona at these prices, but this greater uncertainty will continue to weigh, at least in the short term, on the share. It would have been more consistent with its strategy if Acciona had allocated this investment to the development and promotion of renewable facilities, which is where it provides more value,” Bankinter analysts pointed out.