Not quite so simple. Already had a holding but just spent today...

Not quite so simple. Already had a holding but just spent today researching it.

The debt figures quoted here are only a fraction of the total. The outstanding corporate debt will be $65m plus GRD’s share of the debt on the Lancashire project – about AUD $355m = AUD $420m in total, by the end of the year.

$40m of the old project debt went with the “sale” of Eastern Creek. I think we’ll find GRD paid cash to Emergent Capital to take the project off their hands - for a one-off loss of $50m - all about to be fully disclosed in the year end accounts.

That leaves $65m of direct A$ debt, due next year (30 June 2010). It originated from 2005 when Global Renewables Ltd was purchased from Hastings Funds Mgmt (HFM), via a long deferred settlement arrangement. I doubt that HFM will extend it on easy terms.

And this debt is the tip of the iceberg. The iceberg is the project debt on the Lancashire development. The project is overwhelmingly debt financed, and that is the issue concerning big players.

This sort of low equity arrangement wouldn't be achievable now. It was done when things were booming and finance relatively loose.

The debt is not separately disclosed, as the whole project is reported as an equity accounted investment (50% owned). This doesn’t make the debt it any less real. The total facility is £320 million (GRD’s 50% share = AUD 355m).

GRD will be reporting a 2008 annual loss, but GRD Minproc will have had a good year. Minproc was the cash generator, but it’s likely to be much quieter now, just when the Lancashire project debt is increasing. Significant Lancashire project rev doesn’t start until 2010. Meanwhile, initial start-up costs will be incurred from late 2009.

GRD is now a mightly small company to carry debt in the hundreds of millions. The Lancashire plant has to perform from day one – without the down time of Eastern Creek or the smell issues which forced the closure of the German plants.

GRD did try to reduce their risks. Morgan Stanley were appointed and tried to sell down their 100% holding in Global Renewables, for the better part of last year – no takers. The big issues are: huge debt, undisclosed revenue stream totals and timing, project performance uncertainty.

That’s a fuller picture the reason for the shallow buy column imo. GRD has morphed into a high-debt “all or nothing” gamble me thinks. Not surprisingly shunned. Not a big holding but this one has definitely caught me flat footed with no good exit.

PE