Infigen May Need to Regain Investor Faith After Failed Sale, Analysts Say

Infigen Energy’s decision to abandon a plan to sell its U.S. wind energy business after failing to attract high enough bids may weaken confidence in the power producer as it seeks to grow in Australia, analysts said.

“We believe it will take a period of time for management to re-establish their credibility with investors,” Grace Chan and Scott Carroll, Sydney-based analysts at JPMorgan Chase & Co., wrote in a report. Infigen until recently had indicated that the sale was “on track,” they said in the report to clients.

Without the proceeds, the Australian wind power company’s ability to fund expansion after 2011 and 2012 “appears limited,” William Allott and Jason Mabee, Royal Bank of Scotland analysts based in Sydney, wrote in a report. RBS downgraded Infigen shares to “hold” from “buy.”

Infigen fell 15 percent to A$1.03 in Sydney yesterday, the biggest decline in 18 months, after the company said it would keep the U.S. business. Falling U.S. gas and electricity prices and legislative uncertainty after the Copenhagen climate change talks in December are among factors the company blamed for cancelling the asset sale.

Infigen, formerly known as Babcock & Brown Wind Power, dropped 3.9 percent today to 99 Australian cents at the market’s close, while the S&P/ASX 200 Index dropped 1.2 percent.

Equity Injection

The wind company had pursued the sale to help fund growth in Australia. The U.S. assets may have been worth about A$1.5 billion ($1.4 billion), some of the analysts estimated in their reports.

“Longer term, Infigen might not be able to accelerate the development of its pipeline without a significant equity injection,” JPMorgan’s Chan and Carroll said yesterday.

Infigen’s “fundamental strategy” hasn’t changed, Managing Director Miles George said yesterday. Rosalie Duff, an Infigen spokeswoman in Sydney, declined to comment today.

The company has A$170 million in cash and should be able to develop Australian wind projects in its 2010 and 2011 financial years without selling shares, the JPMorgan analysts said.

Infigen said yesterday that the benefit of retaining the business outweighed what the company would have gained from a U.S. sale at the prices bidders had offered. The decision follows an announcement earlier this month that Infigen had terminated a plan to sell German wind farm assets.

The failure to draw sufficient bids “is likely to tarnish the market’s confidence in Infigen’s ability to deliver on its stated strategy,” Kynwynn Strong and Roy Gilmore, analysts at Goldman Sachs JBWere in Melbourne, said in a report.

While Infigen management’s “credibility will likely suffer” as a result of scrapping the sale, there is “upside” value in the company’s shares after the selloff, John Hirjee, an analyst at Deutsche Bank in Melbourne, said in a report.

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.

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