Wired News – Covanta And Green Investment Group Form Joint Venture for Waste-To-Energy Projects
Stock Monitor: Ecology & Environment Post Earnings Reporting
LONDON, UK / ACCESSWIRE / December 20, 2017 / Active-Investors issued a free report on Covanta Holding Corp. (NYSE: CVA), which is readily accessible upon registration at www.active-investors.com/registration-sg/?symbol=CVA as the Company's latest news hit the wire. On December 18, 2017, the Company announced the formation of a strategic partnership with Green Investment Group Limited (GIG), a subsidiary of Macquarie Group Limited (Macquarie). The partnership aims to develop, fund, and own Energy-from-Waste (EfW) projects in Ireland and UK. Sign up now for our free research reports at:
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Commenting on the formation of the joint venture (JV), Stephen Jones, President and CEO of Covanta, said:
"GIG and Covanta have highly complementary skills, making this a powerful partnership to execute a robust combined pipeline of opportunities."
Edward Northam, Head of GIG Europe, stated:
"The projects developed under the partnership will extract energy from residual waste that would otherwise be lost to landfill, avoiding harmful methane emissions."
Details of the Partnership
The Covanta-GIG partnership will be via a 50:50 JV that will create a platform to develop and invest in the combined project pipelines of the partners and pursue new opportunities for EfW project development or acquisitions. The JV will be governed and controlled by both partners jointly. The initial focus of the JV will be in UK and later expand its operations to other markets worldwide. Once these development projects reach financial maturity and move to the construction phase, the JV plans to acquire ownership stake in each project. Covanta will be the operations and maintenance (O&M) service provider for all the projects handled by the JV.
Covanta's Dublin plant
The JV's first investment will be Covanta's Dublin plant where GIG will invest €136 million and acquire 50% stake in the project via the JV. The amount is subject to working capital adjustments. This investment indicates that the total enterprise value for the project, including net project debt, is approximately €700 million. The transaction allows Covanta to receive a fair market price for its project at the same time retain 50% stake and play the role of an O&M service provider. GIG's investment in the project is expected to close in Q1 2018 and is subject to regulatory approvals and other closing conditions.
Covanta's Dublin plant at Poolbeg, Dublin Port is a thermal treatment plant to treat municipal waste which cannot be reused or recycled. The plant will have the capacity to process 1,644 tonnes of waste per day and generate up to 61MW of energy. The construction of the plant started in 2014 and is expected to be fully commissioned by the end of FY17.
Financials - Dublin plant
Covanta as a 50% JV partner plans to report its portion of the income from the Dublin project in its income statement. The results of Covanta's wholly-owned O&M subsidiary will continue to be consolidated. Covanta plans to show the Dublin project as an asset sale effective December 31, 2017. It plans to deconsolidate its non-recourse project-level debt once the transaction is completed. Any cash distributions from the Dublin project to its equity holders will be shown as dividends from unconsolidated investments.
Covanta expects that the Dublin project will yield $30 million to $35 million on an annualized basis. This amount includes the consolidated O&M results. The Company expects that its portion of the cashflows from the project under the JV will be $10 million to $15 million on an annualized basis
Covanta competed the refinancing of the Dublin project on December 14, 2017, and managed to extend the maturity dates and lower the cost of new debt. The project Company raised a new €396 million senior loan due in 2032 at a rate of 3.1% and a €50 million second lien junior loan due in 2032 at a rate of 5.2%. Funds from these credit facilities were used to pay off all existing debt and the 13.50% convertible preferred instrument held by Blackrock. The new debt remains non-recourse to Covanta and the JV.
Project Pipeline under the JV
The Covanta-GIG JV will cover a total of six EfW projects, i.e. three projects from each JV partner located across attractive waste markets in UK. These six EfW projects will have a total processing capacity of 2 million tonnes of waste annually. Out of the total six, four projects are in advanced stages and have received requisite planning approvals and contractual structures have been finalized. These four projects can move to the construction phase within the next two years. Covanta's Rookery South Energy Recovery Facility in Bedfordshire, UK, is at the most advanced stage out of the four projects and is expected to break ground in H1 2018. GIG's projects are kept confidential due to commercial reasons, but the Company plans to provide timely updates.
The total capital outlay for these four projects is estimated to be $1.6 billion. The JV plans to invest $300 million to $400 million in these projects. Covanta's share of the capital investment in these four projects is $150 million to $200 million. It plans to cover its share of the investment from the funds raised from the JV investment in the Dublin and Rookery projects. Each of the said projects is expected to yield low mid-teens return on equity. Covanta will also earn additional profits from each of these projects as the O&M service provider.
Additionally, GIG is involved in two more EfW projects, which are in very early stages and are expected to progress in the next two to three years. In the future, the JV plans to explore and pursue other opportunities for new project development and acquisitions in the UK and Ireland, and other lucrative EfW markets globally.
About Covanta Holding Corp.
Morristown, New Jersey-based Covanta is a global leader in providing sustainable waste and energy solutions. Annually, Covanta's modern EfW facilities safely convert approximately 20 million tons of waste from municipalities and businesses into clean, renewable electricity to power one million homes and recycle approximately 550,000 tons of metal. The Company also provides comprehensive industrial material management services to companies looking for solutions to complex environmental challenges.
About Green Investment Group Ltd
UK-based GIG is a wholly owned subsidiary of Macquarie Group Limited and is one of Europe's largest teams of dedicated green infrastructure investors. It offers principal investment, project delivery, and the management of portfolio assets, and related services for green infrastructure projects. The business was launched initially by the UK Government in 2012 and was later acquired by Macquarie in 2017. Macquarie is a diversified financial group that provides asset management and finance, banking, advisory and risk, and capital solutions. Macquarie had £277.2 billion assets under management (AUM) as on September 30, 2017.
Stock Performance Snapshot
December 19, 2017 - At Tuesday's closing bell, Covanta Holding's stock dropped 1.82%, ending the trading session at $16.15.
Volume traded for the day: 1.56 million shares, which was above the 3-month average volume of 1.03 million shares.
Stock performance in the last month – up 9.12%; previous three-month period – up 12.15%; past twelve-month period – up 1.89%; and year-to-date - up 3.53%
After yesterday's close, Covanta Holding's market cap was at $2.10 billion.
The stock has a dividend yield of 6.19%.
The stock is part of the Industrial Goods sector, categorized under the Waste Management industry.
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