Ralph's response:
Hi Mr. Lumin,
Thanks for your email below.
You have highlighted many of the significant achievements of Genex over the last few years.
It is also interesting to note the article that appeared in the AFR yesterday (appended to this email below) which also draws attention to some of the trials and tribulations of parties working in the renewables space.
Genex Power will address the relevant points when it prepares its ’Target Statement’ as part of the Scheme of Arrangement process. This will be available for all shareholders and the market in a few weeks time.
The Genex Board as you know must act in the interests of our shareholders as a whole when making decisions. I trust you will find many of your points addressed in the Target Statement.
Kind regards,
Dr. Ralph Craven
Independent Non-Executive Chairman
For those interested, this is the article Ralph handballed me too:
The ASX is not the place for pure energy transition betsAustralian Financial ReviewChanticleer, Anthony Macdonald10 March 2014The ASX just hasn’t cracked it as a destination for the next wave of green electricity generators. Genex Power is the latest to be worth more to someone else.It is Origin Energy and AGL Energy first, daylight second, for equity market investors seeking a way to fund Australia’s energy transition.The ASX just hasn’t cracked it as a destination for the next wave of green electricity generators.You can invest in Origin and AGL and their coal-fired cashflows today, and be part of their transition tomorrow, but there is not much else for anyone wanting to chip into Australia’s whopping $300 billion task of greening the grid.It is not as if renewable groups haven’t tried – it is just that they have mostly ended up limping off the bourse unloved, overlooked and worth more to someone that does not have to stress about quarterly cashflow reports, half-yearly earnings and scary big numbers required to fund developments. It is one thing to flag a big development pipeline (valuable in the world of renewables) and another to not freak out shareholders about funding it.Genex Power, a solar and pumped hydro group in Queensland with a $1 billion enterprise value, is just the latest.It is set to be snapped up by Japanese utility J-Power, which already has a foot in Genex’s equity, debt, development pipeline and boardroom, and is going for the kill with an all-cash bid.As long as nothing comes up in due diligence – and it really shouldn’t given how J-Power’s tentacles already wrap around its target – and assuming the Farquhar’s Skip Capital plays nice, Genex’s nearly nine-year stint as a listed company will be over.It will be sayonara Genex, just like it was for Infigen Energy, Tilt Renewables and New Energy Solar, the other renewables developers to disappear from the ASX boards in the past 3½ years.Does it matter? Well, it goes some of the way to explaining why AustralianSuper fought so hard to keep Origin Energy listed late last year. AusSuper consistently said it saw Origin as the No.1 way to play Australia’s energy transition, and it wasn’t going to sell on the cheap or pay for the privilege of owning in a leveraged buyout vehicle.AGL and Origin are the two obvious ways to invest in the transition (both require patience, particularly AGL), while other exposures are mostly mixed up inside something else. For example, you can get Pilbara electrification (an enormous task) via gas pipeline owner APA Group, or potential new energy projects at iron ore miner Fortescue and oil and gas company Woodside.Pure-play renewables are hard to find and getting harder. It’s arguably the hottest theme in the world, just not on the ASX.That tells us Australia’s $300 billion funding hurdle to green the grid – six times the cost of the NBN or 50 per cent more than went into Australia’s mining super cycle almost 15 years ago, as fund manager Schroders points out – will be more about the existing gen-tailers, private capital players and global utilities than specialist ASX-listed renewables developers.There are a few reasons why they haven’t really worked for Australia’s listed market.The first is risks inherent in being an electricity market participant in Australia. Wholesale markets are volatile, which means the value of clean energy is volatile, and any uncontracted power produced can be worth either a little or a lot depending on a whole range of issues outside of a generator’s control.The second is that developments are big, and expensive engineering projects that can be hard to fund are prone to blowouts and can take a long time to get off the ground. The equity market’s patience for anything long duration and with risk is limited.The third is government policy and regulation, which chops and changes, and the threat of government intervention which can be good or bad for a listed company but is really just another thing out its control. How does an equity investor price that risk?Genex has all of that, and more, which may help explain why its board is waving the white flag at 27.5¢ a share only a year or two from when the company is supposed to hit its straps.The company has been on the ASX boards since 2015, when it raised $8 million at 20¢ a share to list with a $32 million market capitalisation.The plan was to develop its Kidston pumped hydro project in northern Queensland, which was about turning an old gold mine into a power generator and selling electricity into the market at peak times when prices were high.Long roadTo Genex’s credit, it is getting there. It has 150 megawatts in operation with the promised pumped hydro under construction and due for energisation at the end of this year.None of it has been quick or cheap, and Genex has repeatedly tapped equity markets, banks, government agencies and strategic investors to keep developments moving.Even after all the raisings and debt deals, Genex has never posted an operating profit, while its biggest projects (two solar farms with an expected $2 billion capital requirement) are still in front of it. There are a lot of moving parts.All those moving parts have big funding numbers attached – multiple debt refinancings, new project equity sell-downs – and Genex lives with some uncertainty around its ability to continue as a going concern, as flagged in its December 31 accounts. That’s not ideal for any ASX-listed company.Genex argues it isn’t in any danger – it has advisers readying the equity sell-downs for its two big projects with the $2 billion capital requirement, it says the project finance market in the renewable energy sector is well-developed and talks with existing lenders have started – but the uncertainty is obviously enough to have the board ready to recommend J-Power’s takeover. The stock was trading at 15¢ one year ago and 23¢ five years ago.As for J-Power, it is pouncing after five years on the company’s share register, three years on its board and nearly one year after paying $10 million for a 50 per cent stake in Genex’s development pipeline.Skip Capital is Genex’s largest shareholder with a 19.99 per cent stake.
What to take from this?
it seems to me, Ralph is basically trying to say that it's all too hard for him and his colleagues thus they are happy to accept the offer and get out?
With this mentality, can we really trust him and his team to extract full value for shareholders?
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