TransAlta, Canada’s largest publicly traded electricity generator and worst performing utility stock, is spinning off a renewable energy subsidiary with an eye on a stock market float.
It plans to list TransAlta Renewables in August, raising C$200-250 million. On completion of the listing, TransAlta will transfer 1.1 gigawatts (GW) of wind and hydro generation assets to the new company. It is the biggest wind generator in Canada.
TransAlta says it will retain control of the new venture, owning 80-85% of its shares.
"We have grown our renewables portfolio to 25% of TransAlta’s assets over the past 10 years," says Dawn Farrell, President and CEO. "TransAlta Renewables provides us with another effective source of capital for funding growth in renewables which will benefit the shareholders of both companies."
The market welcomed the move, with its stock up nearly 10% since the last June announcement.
“Investors are willing to pay more for renewables,” Jeremy Rosenfield, an analyst at Dejardins Capital Markets in Montreal, told Bloomberg.
Benjamin Pham, a BMO Capital Markets analyst, says that TransAlta’s renewable portfolio has been undervalued for years.
“The structure of the spinoff is designed to permit TransAlta to retain control of its renewable energy fleet while unlocking value to the benefit of shareholders and to accelerate development and acquisition opportunities,” he says.
The company has not performed well in recent years, with an aging fleet of coal power stations in Alberta and a coal plant in Washington state that is being forced to close. It’s been shifting toward renewable energy and owns 16 farms, a geothermal plant and 28 hydro plants (mostly small ones).
TransAlta showed a first-quarter loss of C$11 million this year after two consecutive years of losses. It’s lost 18% in the past 12 months, Bloomberg says, the most among 15 North American industry peers.
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