23rd Dec 2009 13:00
23 December 2009
IPSA Group PLC
("IPSA" or "the Company")
Trading and Working Capital Update and Conditional Turbine Sale Agreement
IPSA PLC (AIM:IPSA), the developer, owner and operator of power generation capacity in Southern Africa, announces an update as regards its current trading and working capital position, and a conditional related party agreement to sell one of its turbines.
TRADING AND WORKING CAPITAL UPDATE
Over the last year the Company has been actively seeking to sell one or more of its four Siemens Westinghouse 701 DU turbines (formerly referred to as the Fiat Avio 501 D turbines, and now upgraded) ( the "Turbines") which were originally acquired for the delayed Coega project at Port Elizabeth, South Africa.
Whilst strict cost containment measures have been implemented, with no revenues currently being generated the Company's working capital position remains extremely tight, with little visibility beyond the next few months unless further working capital can be raised in the intervening period.
As previously announced, the most advanced discussions that have been taking place with regard to realising value from the Turbines have been with Independent Power Corporation PLC ('IPC'), a company with significant experience in developing and operating power projects in a number of countries including in Latin America. IPC is controlled by Peter Earl, chief executive of IPSA and IPC.
In the last few weeks, the Company has been informed that IPC have advanced an opportunity to develop a gas-fired power plant at Huaricana near La Paz, Bolivia, using one of the Company's Turbines, which will require IPC to acquire conditionally the Turbine with immediate effect. Finance for the Huaricana project has been offered by local Bolivian banks and contractors. Corporacion Andina de Fomento ("CAF"), the Andean Development Corporation has expressed an interest in participating in the financing of the project. Financial close and the commencement of construction are both expected at the end of the first quarter of 2010.
However, it must be emphasised that completion of this development is dependent on, inter alia, appropriate financing being available to IPC and on its obtaining appropriate approvals in the coming months from the Bolivian Electricity Control Authority to install and develop the power plant.
Given the difficulty of the Company's present working capital position, and after discussions with the Company's bank, the directors of IPSA believe that entering into a contract to sell a Turbine to IPC for the purposes of the Huaricana power project is in the best interests of shareholders.
CONDITIONAL SALE OF ONE OF THE TURBINES
On 22 December 2009, the Company therefore entered into a conditional agreement with IPC and IPOL Bolivia Sucursal ("IPOL"), a branch office of a subsidiary of IPC, for the sale of one of its four Turbines to IPOL for US$ 30 million. The consideration is consistent with an independent valuation carried out in January 2009 on behalf of Standard Bank. The agreement provides for a deposit of US$ 1 million, a further US$ 20 million payable within 90 days thereafter (the "Completion Date"), and the final US$ 9 million payable by 31 March 2011.
The deposit has been recognised by IPSA through the extinguishing of US$ 1 million of existing sterling indebtedness of IPSA to IPC. The deposit is refundable at IPSA's option should it wish to terminate the agreement prior to the Completion Date, and at IPOL's option if two conditions precedent are not satisfied (or waived by IPOL) relating to the Company obtaining consent for the transaction from the Company's bank, Standard Bank, and from Turbocare (which holds the Turbines). Upon satisfaction of the conditions precedent, completion is due to take place upon the payment of the second instalment of US$ 20 million, by which time, in the first quarter of 2010, formal Bolivian governmental approvals for the Huaricana project are expected to be granted and construction is expected to have commenced. The directors of IPSA have been advised that the Huaricana plant could enter into commercial operations in the first quarter of 2011, being the point at which the final balance of funds are due for payment under the contract.
The funds payable on completion will be used by the Company to make a partial repayment of its senior debt facility secured on the turbines and a partial payment of the refurbishment costs. It is intended that the balance will be retained by the Company for working capital purposes.
Peter Earl, chief executive of the Company, controls IPC. Elizabeth Shaw, the Company's chief operating officer, is also a director of IPC. James West, a non-executive director of IPSA was formerly a director of IPC. As a result, the conditional sale of the Turbine to IPOL and the extinguishing of part of IPC's loan to IPSA are both classified as related party transactions under the AIM Rules. The Independent Directors, being Stephen Hargrave and Neil Bryson, consider, having consulted with Noble & Company Limited (the Company's nominated adviser), that the terms of the sale and purchase agreement and the related extinguishing of part of IPC's loan to IPSA are fair and reasonable insofar as IPSA's shareholders are concerned.
Commenting on the sale of the turbine, Peter Earl, chief executive of IPSA, said: "This agreement for the sale of a turbine for a fast track project in Bolivia confirms the belief of the Board of IPSA that the best price will be realised for the Company's Siemens Westinghouse turbines by selling them into a project rather than as commodity items. There is a world-wide shortage of large gas turbines available for immediate delivery and we believe that the best return for IPSA shareholders comes from selling our turbines directly into power projects in emerging markets."
For further information contact:
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Peter Earl, CEO, IPSA Group PLC: |
+44 (0)20 7793 5615 |
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John Llewellyn-Lloyd, Noble & Company Ltd: |
+44 (0)20 7763 2200 |
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Ana Ribeiro, Account Director, Blythe Weigh Communications |
+44 (0) 20 7138 3206 |
Related Shares:
IPSA.L