Neoen CFO shows the way to green investors’ hearts
Neoen, the French renewable energy company, completed a €600m rights issue at the start of April to help fund it until 2025. Its CFO, Louis-Mathieu Perrin, spoke to GlobalCapital about the deal and explained how green equity stories can still win investors’ attention, despite a recent cooling off in stock valuations.
GlobalCapital: When did the idea of a rights issue come about, and how did Neoen come to launch the deal?
Louis-Mathieu Perrin, Neoen: Neoen is a fast-growing company in a highly capital-intensive industry. If we want to continue growing, we need money to finance new renewable assets. As there is a limit to what can be funded through debt, unsurprisingly equity is part of the equation. The idea of raising capital became more precise last year, and for a simple reason.
When the company did its IPO back in 2018, it clearly stated that the equity it raised at that time would be used to finance its targets up until 2021, and that Neoen would define new medium-term ambitions thereafter.
In the later part of 2020, we started to prepare our 2025 road map. When we unveiled this road map in a capital markets day mid-March 2021, we explained that we were going to need new equity to finance our mid-term ambitions.
We contemplated different possible formats for a capital increase, but we opted for a rights issue. Then we assessed the potential size and timing for an issue.
We knew that there had been a very strong increase in the share prices of renewable energy stocks in the later part of 2020, including Neoen’s. But even if things cooled down a little bit in January and February, we thought that there was still enough momentum for us to tap the equity markets, especially right after having presented a strong and convincing equity story for the upcoming four to five years. The success of our rights issue proved us right.
Why did you consider a rights issue over a block trade?
A block trade would have been very easy in terms of documentation. But the size would have probably been smaller, as such a placement occurs overnight which gives less opportunities to market it to investors.
At the end of the day, we decided to launch a rights issue because we wanted to offer all our current shareholders the possibility to take part in the transaction.
[Also,] we were able to raise €600m through the rights issue. The size was a key factor in our decision and, ultimately, the rights issue was chosen because we thought it was the most efficient and safest way to successfully raise such an amount of capital.
How did you find the rights issue marketing process and having to do it all virtually?
In the end, the roadshow was almost the easiest part of the process, because by then all the documentation was finalised.
We had already submitted the documents related to the offering, including the update of the registration document that we started preparing six weeks before the launch of the transaction. It required a lot of work, and several nights and weekends dedicated to the project.
Impala SAS, FSP and Bpifrance, our main shareholders, announced their intention to subscribe to this operation at two-thirds, 85% and two-thirds of their rights, respectively. So, once the deal went public, one of the challenges was the recycling of the remaining parts of their rights. This was successfully achieved.
Throughout the process of the offering, we spent time meeting with investors remotely. But that was not that complex because, since March last year, we have been doing roadshows remotely for all our financial announcements, so we were pretty used to that by the time of our rights issue.
You mentioned earlier that the general market for renewable energy stocks began to taper off a little at the beginning of this year. How did you find that affected the rights issue?
It was very interesting because, of course, we have strong supporters, and people who have been buying into Neoen for months, or even years. Many investors were there at our IPO and are specifically supporting our equity story.
However, we also faced some very interesting new questions from investors over the profitability of the sector in general. We have been listed for two and a half years and have delivered on our targets, but generally, some people are wondering if there is a kind of overexcitement around the sector.
This is a sector where you need to make big investments and, for investors, confidence in future returns is key. We also all know that the big oil companies will come and invest massively at some point, so there will be some competition.
We therefore spent time re-emphasising the specifics of our strategy, our differentiating factors, as well as our investment discipline. It is true that there is ample liquidity in the market, but some investors are keeping a very cool head.
However, the rights issue came a few days after the presentation of our 2025 road map, and we were clear on our targets and the way we finance ourselves.
In this sector, the key is to build investor confidence. What really matters for a company like Neoen is defining targets that are achievable and delivering on these targets. In preparing the capital markets day, we spent a lot of time ensuring that we were presenting an attractive enough story without overpromising, because, ultimately for a listed company, underdelivering is the worst thing that can happen.
Can you talk me through your development pipeline now you have financing through to the end of 2022?
We have ambitious targets and intend to double in terms of size at [the] mid-term horizon. We are targeting 10GW of assets in operation or under construction by 2025, while at the end of the year 2021, we should be at 5GW.
In order to reach that objective, we will continue to build our positions in our existing countries and the three main areas where we operate: solar, wind and storage.
In Australia, we have been very successful, and we think that there are plenty of opportunities to continue our development there because, ultimately, the country will have to withdraw some old coal plants.
In Europe, we are present in France, the Nordics, Portugal and Ireland. Our objective is also to continue to build in these existing countries, but we would also be willing to add new countries to our portfolio.
Then we have the Americas, where we have been very successful in some regions, less [so] in others. I think the priorities there would be to stabilise the existing business and to make sure that we can continue to earn good returns, but also be disciplined.
We have a presence in the US although we are not yet producing electricity. If the opportunity arises to actually build a position there at the right conditions for an actor such as Neoen, we’d be very pleased to do so.
What advice would you give other CFOs who might be considering a rights issue this year?
Start early, because it is all about preparation.
All-in-all, a rights issue is not that difficult. It’s a lot of work though, as there are pages and pages that you need to write for the offering documentation, and the presentation of the strategy and the investment case.
So you need to start early and be very focused. It is not useful to convey a very complex message with multiple targets. You need to choose a clear language and set clear and self-explanatory targets. With that in mind, you should be successful.