CDPQ Finances KKR's Acquisition of France's Albioma

Greentech Lead reports KKR offers to buy renewable energy producer Albioma:

KKR & Co., a leading global investment firm, has made an offer to buy Albioma SA, a renewable energy producer in France, with the financial support of CDPQ, an investment group.

CDPQ, the main lender in the transaction, alongside other commercial lenders and banks, has provided part of the EUR 485 million (approximately CAD 650 million) acquisition financing to support the tender offer.

Albioma operates over 1 GW of installed capacity around the world, through thermal, solar and geothermal power assets, mainly in French metropolitan and overseas territories.

Albioma, as part of its strategy to support the energy transition, aims to end coal use by 2025 by pursuing the conversion of its coal fired power plants into primarily residual biomass power plants and generate 100 percent of its electricity from renewable energy by 2030.

Private Equity Wire also reports KKR to acquire Albioma for €485m:

KKR & Co has made an offer to buy Albioma SA, an independent renewable energy producer in France, for €485 million. CDPQ, the main lender in the transaction, alongside other commercial lenders and banks, has provided the acquisition financing to support the tender offer.

Albioma SA operates over 1 GW of installed capacity around the world, through thermal, solar and geothermal power assets, mainly in French metropolitan and overseas territories. As part of its strategy to support the energy transition, the company aims to end coal use by 2025 by pursuing the conversion of its coal fired power plants into primarily residual biomass power plants and generate 100% of its electricity from renewable energy by 2030.

In order to meet CDPQ's transition envelope criteria, a clear and robust decarbonisation plan aligned with the Paris Agreement goals was required and reviewed by an independent expert. Albioma's conversion plan to convert its thermal plants towards 100% biomass fuel sources is underway, demonstrating the company's commitment to the energy transition.

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On Friday, CDPQ put out a press release stating it supports KKR’s acquisition and the energy transition plan of France-based Albioma SA:

Inaugural transaction for CDPQ’s $10-billion transition envelope dedicated to the decarbonization of the heaviest-emitting sectors

Global investment group CDPQ announced today that it has provided part of the EUR 485 million (approximately CAD 650 million) acquisition financing to support the friendly tender offer launched by KKR & Co. (NYSE: KKR), a leading global investment firm, to acquire 100% of Albioma SA, a French independent renewable energy producer. CDPQ is the main lender in the transaction, alongside other commercial lenders and banks.

Albioma SA operates over 1 GW of installed capacity around the world, through thermal, solar and geothermal power assets, mainly in French metropolitan and overseas territories. As part of its strategy to support the energy transition, the company aims to end coal use by 2025 by pursuing the conversion of its coal fired power plants into primarily residual biomass power plants and generate 100% of its electricity from renewable energy by 2030.

“Albioma SA provides essential infrastructure that delivers renewable energy in French overseas territories and the company has taken deliberate action to convert its operational thermal plants away from coal. With this investment, we take a step forward in tackling the complex challenge of decarbonizing heavy-emitting sectors while supporting a longstanding partner, KKR, expand their commitment to accelerating the energy transition,” said Marc Cormier, Executive Vice-President and Head of Fixed Income at CDPQ.

“This first transaction as part of our transition envelope represents how long-term capital can support the path towards a more sustainable economy. This investment demonstrates CDPQ’s climate strategy at work across multiple investment approaches to decarbonize the real economy and accelerate the energy transition,” said Marc-André Blanchard, Executive Vice-President and Head of CDPQ Global and Global Head of Sustainability.

In order to meet CDPQ’s transition envelope criteria, a clear and robust decarbonization plan aligned with the Paris Agreement goals was required and reviewed by an independent expert. Albioma’s conversion plan to convert its thermal plants towards 100% biomass fuel sources is underway, demonstrating the company’s commitment to the energy transition.

ABOUT CDPQ

At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public retirement and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at As at June 30, 2022, CDPQ’s net assets totalled CAD 391.6 billion. For more information, visit cdpq.com, follow us on Twitter or consult our Facebook or LinkedIn pages.

CDPQ is a registered trademark owned by Caisse de dépôt et placement du Québec and licensed for use by its subsidiaries.

This investment to support  KKR’s acquisition and the energy transition plan of France-based Albioma SA marks CDPQ's first transaction in its $10-billion transition envelope. 

As a reminder, CDPQ announced its climate strategy last year built around four distinct but complementary pillars:

Leveraging the expertise its teams have acquired over the past several years, CDPQ is basing its new climate strategy on four vital and complementary pillars to meet the transition’s major challenges.

Two of these pillars build upon the organization’s accomplishments since 2017 while increasing its ambition:

• 1. Hold $54 billion in green assets by 2025 to actively contribute to a more sustainable economy. 
• 2. Achieve a 60% reduction in the carbon intensity of the total portfolio by 2030.

Two new pillars have been added to move CDPQ’s climate action into the next stage:

• 3. Create a $10-billion transition envelope to decarbonize the main industrial carbon-emitting sectors. 
• 4. Complete our exit from oil production by the end of 2022.

As a long-term investor, CDPQ designed this strategy with a distinctive approach that will deliver its depositors the return they need while helping meet the enormous challenges of climate change.

Since CDPQ exited out of oil & gas, the $10 billion transition envelope to decarbonize the main industrial carbon-emitting sectors is focused on the industrial sector.

I invite you to read more about Albioma and the way they harnessed their experience of energy recovery from bagasse to become a key partner of industrial sugar refiners, producing renewable energy in areas not connected to mainland power networks.

Interestingly, Albioma produces electricity and heat from bagasse:

Supplying plants with bagasse in return for a supply of steam and electricity for sugar mills is a sustainable model that gives these refiners a decisive competitive edge. Similarly, the energy efficiency of Albioma’s plants enables us to sell the power we produce to electricity distributors, helping them cope with increasing consumption.

In France and Mauritius, during the sugar campaign which lasts between four and six months, the plants operate as cogeneration units, with bagasse as the main fuel. Between harvesting campaigns, they operate using a condensing process in the same way as conventional power plants, mainly from biomass. It can be used in a hybrid-combustion configuration to supply energy all year round at a competitive cost while complying with European and French atmospheric emissions standards.

In Brazil, the duration of sugar campaigns (nine or ten months) and the quantity of sugar cane processed by sugar mills enables the Group’s cogeneration facilities to operate using bagasse all year round (i.e. 11 months out of 12, with the remaining month set aside for annual maintenance).

Albioma states its goal is to replace coal with new forms of biomass:

In keeping with the Climate plan and the objectives defined in France’s “Energy Transition for Green Growth” legislation, Albioma aims to phase out coal in favour of new forms of sustainable biomass in addition to bagasse. Work to convert our plants for all-biomass operation is already well underway in Overseas France. This will increase the share of renewable energy in the mix while considerably reducing carbon dioxide emissions.

The Group’s new plants are also designed to address the challenges associated with the energy transition: Galion 2, in Martinique, is the first all-bagasse/biomass power plant in Overseas France, and the combustion turbine in Saint-Pierre, Reunion Island, is the world’s first bioethanol-fuelled power plant.

Year-round energy source

Our unmatched expertise in hybrid combustion and cogeneration processes enables us to produce competitively-priced energy all year round, while complying with European atmospheric emissions standards.

As you can read, Albioma is already on its way to phasing out coal completely from its operations to attain its goal of using 100% renewable energy by 2030 (see below).

And with KKR now acquiring it and with a large part of this acquisition being financed by CDPQ as part of its $10-billion transition enevelope, this shift away from coal will be critically important.

For its part, KKR has been weighing acquiring Albioma since March when Albioma has a market value of about $1.2 billion, and reached a strategic agreement on a friendly public tender offer in late April:

Paris La Défense, 28 April 2022

Albioma and KKR reach strategic agreement on a friendly public tender offer

Tender offer priced at 50 euros per share, plus 0.84 euro dividend to be paid exclusively in cash.

Tender offer by KKR infrastructure business to accelerate Albioma’s energy transition in French overseas territories, and international expansion.

• The offer represents a premium of 51.6% over Albioma’s undisturbed closing share price on 7 March 2022¹ and 46.6% over the three-month volume-weighted average².
• Albioma’s Board of Directors unanimously welcomes the proposed transaction, following in-depth discussions on industrial strategy and outlook.
• Bpifrance, an Albioma shareholder since 2016, intends to continue supporting the Group by investing alongside KKR.
• KKR fully supports the Group’s strategy to approach 100% renewable energy by 2030.
• KKR will work closely with the current team while preserving Albioma’s corporate identity, jobs, and culture.
• Albioma will promptly convene the Employees’ Group Committee to initiate the consultation process.
• KKR has a strong track record of infrastructure investments in renewable energy, and a significant footprint in France with €10 billion invested to date.
  
  

Frédéric Moyne, Albioma’s Chairman and CEO said: “This offer from KKR confirms the relevance of Albioma’s vision, the quality of strategy execution and the value of our positioning, particularly in French overseas. It also highlights the Group’s successful transformation to serve the energy transition thanks to the continued commitment of our teams, which will be continued and strengthened with the support of KKR. The Board welcomes this proposal and has formed an ad hoc committee composed of a majority of independent directors to evaluate its terms, in the interest of all of the Group’s shareholders and stakeholders.”

Vincent Policard, Partner and Co-Head of European Infrastructure at KKR, commented: “The energy transition requires major long-term investment. Alongside Frédéric Moyne and Albioma’s team, KKR is committed to accelerate energy transition in French overseas departments and the international expansion, while significantly increasing renewables in the energy mix to facilitate the exit from fossil fuels. KKR’s infrastructure business has the capital, renewable energy expertise and global footprint to support the execution of Albioma’s 2030 roadmap.”

Albioma (ABIO - FR0000060402 / Euronext Paris), an independent renewable energy producer, announces the receipt of a tender offer on Albioma’s shares and warrants by an affiliate of the affiliated funds advised by Kohlberg Kravis Roberts & Co. L.P. or one of its affiliates (“KKR”). At a meeting on April 27, 2022, Albioma’s Board of Directors unanimously welcomes the proposed transaction, which would support the Group’s transition towards 100% renewable energy by 2030. The tender offer, which would offer existing shareholders significant and immediate cash value, will be carried out at a price of:

• €50 per Albioma share (plus the ordinary dividend of 0.84 euro for fiscal year 2021 which will be paid exclusively in cash) representing a 51.6% premium over the last undisturbed share price on 7 March 2022 and a 46.6% premium over the volume-weighted average price per share over the last three months;
• €29.1 per Albioma warrant.

A reinforced strategic and industrial ambition

Albioma is an independent renewable energy producer, with an installed capacity of over 1 GW, and a significant contributor to the energy transition, thanks to its investments in biomass, photovoltaics and geothermal energy. With 14 power plants in French overseas departments, Mauritius and Brazil, the Group has developed a unique partnership with the sugar industry to produce renewable power from bagasse, a fibrous residue from sugar cane. It is also the leader in photovoltaics in the French overseas territories. Consistent with its geographical and technological diversification strategy, the Group has recently entered the geothermal energy business with the acquisition of two power plants in Turkey.

KKR fully supports the Group’s ambition to invest heavily in the energy transition in the French overseas departments by 2025 with a program that seeks to maximize its positive local impact.

In addition, KKR will make available its operational expertise and financial resources to accelerate the Group’s international expansion. KKR will work closely with the existing teams to support Albioma’s strategy, while preserving the Group’s integrity and maintaining the same levels of service and performance.

KKR will fund the transaction through its affiliated infrastructure funds. KKR is a leading global investment firm with a long track record of investments in renewable energy infrastructure. The firm, which established its global infrastructure business in 2008 with strategies focused on both Core and Core Plus assets, currently oversees approximately $40 billion in infrastructure assets globally and has made 65 infrastructure investments across a range of sub-sectors and geographies. The firm is very active in France, with €10 billion invested in French companies since 2002, including leading players in the energy transition.

Albioma’s Board of Directors welcomes proposed transaction, establishes ad hoc committee

The Board of Directors of Albioma, at a meeting on April 27, 2022, unanimously welcomed the proposed transaction. The Board has established an ad hoc committee composed of a majority of independent board members who will issue recommendations with respect to the proposed tender offer, following a comprehensive examination of its conditions.

In this context, the Board of Directors has decided to modify the terms of payment of the dividend for the 2021 fiscal year. The dividend, to be proposed to the Annual General Meeting of 25 May 2022, will remain at 0.84 euro per share but will be paid entirely in cash, the option for payment in shares having now been withdrawn.

Upon the recommendation of the ad hoc committee, Ledouble has been appointed as an independent expert to issue a fairness opinion on the financial terms of the tender offer, pursuant to the provisions of Article 261-1, I, 2°, 4° and 5° of the AMF General Regulation.

Once the report prepared by the independent expert and the opinion of the Employees’ Group Committee has been obtained, Albioma’s Board of Directors will, upon recommendation of the ad hoc committee, issue a reasoned opinion on the merits of the tender offer and its consequences for Albioma, its shareholders and its employees. Such reasoned opinion and the independent expert’s report will be provided in the reply document (Note en réponse) to be prepared by Albioma and approved by the AMF.

Bpifrance, an Albioma shareholder since 2016, which holds 5% of the Group’s capital, intends to continue to support Albioma by investing alongside KKR, subject to the approval of its internal governance bodies, the delivery of an informed opinion by its Board and the completion of the offer. The investment by Bpifrance is to be made via the contribution of part of its shares to the offeror at the offer price.

On April 27, 2022, Albioma and KKR entered into a tender offer agreement under which KKR undertook to file the offer submitted to Albioma, and Albioma undertook to cooperate with the KKR offer. The tender offer agreement provides, among other things, for the payment by Albioma of 10 million euros if a competing offer is submitted and is successful. Conversely, KKR undertakes to pay Albioma the same amount if it fails to submit a public offer or obtain the required regulatory approvals.

Tender offer conditions and timetable

It is expected that the tender offer document will be filed by KKR with the AMF by mid-May 2022.

The completion of the tender offer will be subject, in addition to the mandatory minimum acceptance condition set out in section 231-9, I 1° of the AMF General Regulation, to a minimum acceptance condition that KKR obtains a number of Albioma shares representing at least 50.01% of the share capital and “theoretical” voting rights.

KKR intends to request a squeeze out and delisting of Albioma’s shares, subject to reaching 90% of the share capital and voting rights of Albioma as a result of the Offer.

Completion of the transaction also remains subject to EU Commission merger control approval, as well as obtaining foreign investment control clearances in France and in Spain.

Albioma’s Employees’ Group Committee will be consulted on the offer, in accordance with the regulations.

J.P. Morgan Securities plc and Darrois Villey Maillot Brochier AARPI act respectively as exclusive financial advisor and legal advisor to Albioma.

Société Générale and Bredin Prat act respectively as exclusive financial advisor/presenting bank of the tender offer and legal advisor to KKR.

 In August, PV Magazine reported that KKR acquired an 83.44% stake in Albioma:

US investor KKR announced it acquired an 83.44% stake in French energy company Albioma.

“Following the completion of the Offer initiated by KKR for all Albioma securities, KKR will hold 27,049,985 shares representing 83.44% of Albioma’s capital and 83.44% of voting rights,” Albioma said in a statement released. “The settlement-delivery of the Offer will take place on 11 August 2022.”

Bloomberg reported on March 8 that the KKR could take over Albioma for around €1.1 billion, as part of its strategy of expansion in the field of renewable energies.

“Albioma and KKR are pleased with the great success of this first offer period,” the French company stated. “The Board of Directors unanimously issued, on 30 May 2022, a favorable opinion on the Offer, judging it to be consistent with the interests of the Group, its shareholders and its employees.”

In 2021, Albioma achieved a turnover of €573 million ($584.8 million).

KKR fully supports Albioma's strategy to approach 100% renewable energy by 2030.

It partly funded this acquisition through its infrastructure fund and as Vincent Policard, Partner and Co-Head of European Infrastructure at KKR, commented: 

“The energy transition requires major long-term investment. Alongside Frédéric Moyne and Albioma’s team, KKR is committed to accelerate energy transition in French overseas departments and the international expansion, while significantly increasing renewables in the energy mix to facilitate the exit from fossil fuels. KKR’s infrastructure business has the capital, renewable energy expertise and global footprint to support the execution of Albioma’s 2030 roadmap.”

CDPQ is chipping in part of the EUR 485 million (approximately CAD 650 million) acquisition financing to support the friendly tender offer launched by KKR & Co.

This deal demonstrates how elite private equity funds are able to arrange large financing even in the toughest times when debt markets are frozen. 

Having a partner like KKR serves CDPQ well and in return, having access to CDPQ's financing serves KKR well.

To be clear, however, the key part of CDPQ's press release is this passage:

In order to meet CDPQ’s transition envelope criteria, a clear and robust decarbonization plan aligned with the Paris Agreement goals was required and reviewed by an independent expert. Albioma’s conversion plan to convert its thermal plants towards 100% biomass fuel sources is underway, demonstrating the company’s commitment to the energy transition.

If KKR and Albioma didn't provide a clear and robust decarbonization plan aligned with the Paris Agreement goals, then this financing would not have been possible.

Still, at CAD 650 million, CDPQ is already on its way of committing to its $10-billion transition envelope.

Look for more deals of this type outside the oil & gas sector for CDPQ alongside top strategic partners like KKR looking to decarbonize heavy industrial emitters. 

Lastly, Accounting For Sustainability put out a blog comment on transition plans Q&A with Joy Willaims of GFANZ:

The Glasgow Financial Alliance for Net Zero (GFANZ) is a global coalition of financial sector institutions and their sector-specific alliances working together to accelerate the world’s transition to net zero greenhouse gas emissions by 2050 and achieve the objective of the Paris Agreement to limit global warming to no more than 1.5°C. GFANZ launched in April 2021 to expand the number of net zero-committed financial institutions and to establish a forum for addressing sector-wide challenges associated with the net zero transition, helping to ensure high levels of ambition are met with credible action. It was formed by UN Special Envoy on Climate Action and Finance, Mark Carney, and the COP26 presidency, in partnership with the UNFCCC Race to Zero campaign, to coordinate efforts across all sectors of the financial system to accelerate the transition to a net zero global economy. At COP26 in Glasgow, UN Special Envoy for Climate Ambition and Solutions Michael R. Bloomberg joined as Co-Chair and former SEC Chairman and Head of the Secretariat for the Task Force on Climate-related Financial Disclosures (TCFD) Mary Schapiro joined as Vice Chair and Head of the GFANZ Secretariat.

Our recent Finance Leaders' Sustainability Barometer highlighted a gap between sustainability ambitions and the work to make them a reality. Transition plans are a vital step to closing this gap. On November 1^st 2022, GFANZ launched their final recommendations and guidance on 'Financial Institution Net-zero Transition Plans'. These recommendations by GFANZ describe how financial institutions can operationalize their net zero commitments and support the real-economy transition.

Here we share a quick question and answer session we had with Joy Williams, Executive Director, Financial Institution Transition Planning at GFANZ, at the time of the launch of their transition plan recommendations.

Q. What is the role of a transition plan in achieving an organization’s net zero objectives?

A. Net zero transition plans turn a net zero commitment into a set of goals and actions that a financial institution will take over time to achieve their objective with a focus on real-economy emissions reduction. These plans can help to galvanize commitment and ambition into action across the organization. Robust plans can provide assurance and credibility that net zero transition commitments have integrity and can be held to account. Transition planning can therefore support the vital investment in the real economy that is required to facilitate emissions reductions. Through these recommendations we hope to play a role in standardization which will further build trust, transparency, and accountability.

Q. What are the key considerations for finance professionals on transition plans?

A. GFANZ has identified four key financing strategies that define transition finance. Financing in line with these strategies is critical to delivering real-economy emissions reduction in support of an orderly, net zero transition. They are:

1. Developing and scaling Climate Solutions
2. Financing or enabling entities that are already Aligned to a 1.5°C pathway
3. Financing or enabling entities committed to Aligning with 1.5°C-aligned pathways
4. Financing or enabling the accelerated Managed Phaseout (via early retirement) of high-emitting physical assets

The 10 components of the GFANZ proposed net zero transition framework provide a common framework for transition finance that advance the net zero transition and provide oversight of the implementation of the net zero transition plan.

The 10 components are organized into five themes:

1. The Foundations theme covers the principles, assumptions, and context that a financial institution should articulate once it has committed to achieving net zero GHG emissions by 2050 or sooner.
2. The Implementation Strategy theme covers how the financial institution can integrate transition strategies into its core business activities and decision-making processes as part of its strategy to align with the net zero transition. There are three components to this theme: products and services, activities and decision making, and policies and conditions.
3. The Engagement Strategy theme recognizes that a net zero transition will require action from across the financial sector, real-economy companies, and government, and that financial institutions play a significant role in supporting and advising clients and engaging with portfolio companies. The three components cover the different stakeholders: those in a business relationship with the financial institution — clients and portfolio companies; peers in industry; and those in government and the public sector.
4. The Governance theme covers the internal corporate governance mechanisms with two components: roles, responsibilities, and remuneration; and skills and culture.
5. The Metrics and Targets theme discusses how financial institutions can monitor progress toward net zero-aligned targets across three categories: real-economy emissions reduction, net zero transition plan execution, and financed emissions.

Q. What do you recognize as key challenges in putting together a transition plan and how does your guidance help overcome this? And, how would you suggest organizations get started in developing a transition plan?

A. One key challenge is that a transition plan will involve multiple stakeholders across any given institution. Our Governance component seeks to address this; it states: Skills and culture recognizes that the financial professionals in the institution will need access to resources, new knowledge and skills, and education in this transition.

Our report also recognizes the need for continued progress on a number of issues for transition plans or related to the net zero transition. However, we encourage financial institutions to start developing plans as soon as possible. In our framework, the Foundations theme helps to clarify and detail the objectives of a general net zero commitment for the specific circumstances of a financial institution and sets the context for the Implementation and the Engagement strategies. At the same time, the Governance theme details many internal levers that may be available to practitioners to build the project management needed for a net zero transition strategy.

Q. How does this guidance complement other guidance on transition plans currently in the market?

A. Our framework highlights and reinforces the other guidance in the sector.

GFANZ has worked with representatives of the sector-specific alliances and has also been in close contact with key third-party sector expects, such as the International Sustainability Standards Board (ISSB), TCFD, and the UK Transition Plan Taskforce (TPT), to name just a few.

Our voluntary guidance is pan-sector, so it should be reviewed alongside any sector-specific guidance by a given financial institution and can be a resource to support developing and implementing net zero transition plans. For example, the GFANZ framework may provide a lens on the elements of a transition that is helpful in assessing your current net zero transition plan, in communicating to senior decision makers the structure and importance of a net zero transition plan, or in educating colleagues.

Financial institutions should refer to sector alliance-specific guidance for detailed guidance for unique characteristics of their business.

Q. What’s next in your plans?

A. Since the release of our guidance, we have been engaging with the policymakers, standard setters, and stakeholders, to share the recommendations and guidance.

GFANZ will continue to work with its members, regulators, and sector experts, among others, to advance progress where GFANZ is best placed to contribute.

I wanted to add Joy's comments here as I think her insights are well worth reading (she used to work at OTPP before joining GFANZ).

Below, watch how Albioma harnesses its experience of energy recovery from bagasse to become a key partner of industrial sugar refiners, producing renewable energy in areas not connected to mainland power networks. 

Update: Private Equity Insider reports KKR to make $400m investment in Serenitca Renewables:

KKR is to invest $400 million in Serentica Renewables (Serentica), a decarbonisation platform that seeks to enable the energy transition by providing complex clean energy solutions for energy-intensive, hard-to-abate industries.

Serentica looks to deliver round-the-clock clean energy solutions for large-scale, energy-intensive industrial customers. This includes providing renewable energy solutions through long-term Power Purchase Agreements (PPAs) and working closely with customers to design their paths to net-zero electricity.

KKR is making its investment from its Asia Pacific Infrastructure strategy. The transaction in Serentica marks KKR’s latest investment in India and the renewables sector. Since 2011, KKR has deployed over $15 billion in equity globally to invest in renewable assets, such as solar and wind, which have an operational power generation capacity of 23 GW, as of 31 December, 2021. In Asia Pacific, KKR sees renewables as core to its infrastructure strategy and seeks to invest behind the significant opportunities across the region.

You can learn more about Serentica here. KKR is making the right energy investments in India and elsewhere, in line with its commitment to net zero by 2050.