SunEdison Plans Second Yieldco With Emerging Markets Focus

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SunEdison Inc. is forming a second publicly traded subsidiary that will own renewable-power plants, this time focusing on emerging markets like Brazil, China and India.

An initial public offering of TerraForm Global Inc., as the so-called yieldco was named, will seek to raise as much as $700 million, Maryland Heights, Missouri-based SunEdison said Thursday in a filing.

SunEdison also announced the purchase of 757 megawatts of wind, solar and hydro assets in developing nations, as well as rights to buy other projects with 1,918 megawatts of capacity.

The new company gives SunEdison “a separate vehicle with a very different risk profile” and a more “global breadth” than its already listed TerraForm Power Inc. yieldco, Jeffrey Osborne, an analyst at Cowen & Co. in New York, said by e-mail.

“It allows them to accelerate the cash collection from the projects that have been built and are sitting on the balance sheet,” he said.

Yieldcos allow developers to raise lower-cost capital by selling projects to fund additional ones, while offering attractive returns to shareholders.

Renewable energy companies like NRG Energy Inc. and Abengoa SA have listed similar units, mainly holding assets in the U.S. Most recently SunPower Corp. and First Solar Inc. said in February that they’ll form a joint yieldco.

‘Well-Oiled’

SunEdison’s existing yieldco is a “machine well-oiled” while the new one will add value to its parent thanks to fast growth in emerging markets, Patrick Jobin, an analyst at Credit Suisse Group AG in New York, said Thursday in a note to clients.

The company has been working to develop projects in emerging economies for more than five years and now has in place a presence that allows them to finance projects at lower costs than locals, Chief Executive Officer Ahmad Chatila said.

“We have a strong engine for projects in emerging markets,” he said in an interview. “The cost of capital is the biggest challenge for renewable energy everywhere but especially so in emerging markets.”

JPMorgan Chase & Co., Barclays Plc, Citigroup Inc. and Morgan Stanley are acting as joint bookrunners for the offering.

SunEdison’s asset purchase also includes projects in Peru, South Africa and Uruguay, the company said. Terms weren’t disclosed and the transactions are expected to close by the third quarter.

First Stage

The acquisitions are the first stage of SunEdison’s plan to capitalize on providing renewable power to fast-growing emerging markets, Chatila said in the statement.

SunEdison jumped 13 percent to $27.98 at the close in New York, the most since Nov. 18. The shares are up 43 percent this year, more than any other U.S. solar company.

The developer also said it secured a total of $362 million in financing from TerraForm Global’s joint bookrunners to buy renewable energy projects. SunEdison has obtained $175 million of equity investments from Blackstone Group, Everstream Opportunities Fund II and Altai Capital Management.

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