Duke to sell US$2b stake amid push to build renewables

New York

SINGAPORE'S sovereign wealth fund, GIC, agreed to buy a US$2.05 billion minority stake in a Duke Energy Corp unit, allowing the utility to forgo a planned equity raise as power companies nationwide prioritise renewable-energy development.

Selling a 19.9 per cent stake in its Indiana unit will help Duke pay for its increased US$58 billion to US$60 billion capital plan without having to raise US$1 billion of common equity, according to a statement last Thursday. North Carolina-based Duke will remain majority owner and sole operator of the unit.

The company has set goals of cutting its carbon emissions in half by 2030 and becoming net-zero by 2050. The GIC investment will help Duke "to effectively finance our robust investment plan in a clean energy future and continue delivering sustainable value to our investors", chief executive officer Lynn Good said in a statement.

The deal comes as utilities that once relied mostly on wind and solar developers for clean-energy generation now want to build their own renewables and hold those assets on their balance sheets. The sale is a good way to get the money to build those projects, said Kit Konolige, a Bloomberg Intelligence utilities analyst.

"Now that it's pretty clear we're in a long-term bull market for renewables, utilities are definitely saying, 'Hey, the more renewables we do, the higher our earnings are going to be'," Mr Konolige said.

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Duke might even try to sell GIC more of the Indiana unit in the future so it could develop renewable energy in North Carolina or modify its grid across its footprint, Guggenheim analyst Shahriar Pourreza said in an investor note. "Private companies have a different view on what assets are worth and, in many cases, are willing to pay more for assets than the public market," the note stated.

The agreement also will provide Duke with an infusion of cash just months after it rebuffed a takeover offer from NextEra Energy Inc, the world's largest utility owner by market value. It sends the signal that Duke is "going on its own", said Mr Konolige. "It certainly looks like they're not interested in any kind of large scale M&A activity."

Duke said the deal, which will require approvals from federal energy regulators and the Committee on Foreign Investment in the US, will bolster the company's long-term adjusted earnings-per-share growth rate of 5 per cent to 7 per cent through 2025, up from a previously stated 4 per cent to 6 per cent growth rate.

"This is a creative, unorthodox tactic for Duke to use," said Pavel Molchanov, an analyst at Raymond James. "For Duke shareholders, the benefit is avoiding the dilution from the company's previously planned equity issuance."

Duke's mid-west operations run almost entirely on coal and gas. GIC said its investment will help the utility accelerate its clean energy transition over the next five years. It's part of the sovereign wealth fund's broader strategy to engage with carbon-intensive businesses and support them in transitioning to cleaner emissions rather than divesting from industries that burn coal and oil.

GIC in 2016 bought a 19.9 per cent stake in US powerline operator ITC Holdings Corp for US$1.23 billion in cash. It also purchased a stake in Oncor Electric Delivery Co, the owner of the biggest transmission network in Texas, along with Canadian investors in 2008 but later sold the stake to NextEra.

Duke Energy Indiana supplies power to about 810,000 residential, commercial and industrial customers. BLOOMBERG