BUILDER BUYS WIND (AS A HEDGE!)

FCC, a Spanish construction giant, having decided on a €4 billion ($5.9 billion) diversification program in response to the downturn in Spain’s building sector, made a move into the energy sector. A purchase of oil and gas futures? Coal or nuclear plant construction? New transmission? No – wind energy.

It is a $1.15 billion move into Spain’s wind industry and it is to hedge against the anticipated ongoing downward trend in the Spanish construction sector as the subprime mortgage mess continues to send reverberations through the world financial community. That FCC chose an investment in wind to counteract this expected slowing in its primary business speaks volumes about wind’s financial viability.

Babcock & Brown Wind Partners (BBW), the seller, is essentially profit-taking. The increasing value of wind in Europe, as against the value of wind in the rest of its (worldwide) wind holdings, makes this an attractive sale and allows BBW to free up capital with which it can develop wind energy projects in other places not yet as expensive (like the U.S., China and India).

Miles George, chief executive, Babcock & Brown Wind Partners: "[The sale price] is materially higher on a per megawatt basis than the current market implied value of BBW's total portfolio…"

Footnote: BBW decided, after reviewing offers, not to sell assets in Germany and will delay sale of its assets in Portugal and France until the fourth quarter of the year. This most likely reflects the unsettled state of feed-in tariffs and other subsidies in Europe.

Spain is among the most active wind-building countries in the world. (click to enlarge)

FCC of Spain buys into wind energy
August 21, 2008 (Reuters via International Herald Tribune)

WHO
Fomento de Construcciones y Contratas (FCC); Babcock & Brown Wind Partners (BBW)

WHAT
Construction company FCC is moving €780 million ($1.15 billion) (€190 million as purchase price plus €590 million as assumed debt) into wind energy assets as a hedge against the growing slump in Spain’s building sector.

The wind industry is looking at nothing but growth for the foreseeable future. (click to enlarge)

WHEN
BBW postponed selling its German wind assets and is considering sale of its Portuguese and French assets in the fourth quarter 2008.

WHERE
FCC is based in Barcelona, Spain.
The purchased wind assets are B & B’s wind assets in Spain.
BBW holds wind assets all over the world and is based in Sydney, Australia.

WHY
- BBW’s Spanish wind holdings, about 17% of its total wind portfolio, include 14 wind installations and a 421-megawatt capacity.
- The FCC/BBW agreement includes 45 more megawatts of wind capacity under development.
- This is FCC's first investment in energy.
- The sale earns BBW a profit of ~$266 million (Australian) ($234 million).

Spain's wind assets, not the greatest, are nevertheless among the best in southern Europe. (click to enlarge)

QUOTES
Alejandra Cosio, analyst, Ahorro Corporación Financiera: "The size of the total portfolio is substantial and will allow FCC to become the sixth-largest wind-energy operator in Spain…"