What's the limit for energy company yielco spinoffs? If SunEdison's (NYSE: SUNE) latest effort is any indication, the answer might be two.
Last week, the big renewable energy company divested most of its non-US solar and wind assets by launching an IPO of a package of them. This is now a company called TerraForm Global (NASDAQ: GLBL), and is SunEdison's second yieldco spinoff in barely over a year.
But this latest effort hasn't yet lit the investing world on fire. Let's take a brief look at the company and try to figure out why that might be.
Yielding to the market
For those unfamiliar with the terminology, a yieldco is a recent innovation in the energy sector. Akin to a REIT in real estate, or a master limited partnership elsewhere in the energy field, a yieldco essentially a collection of specialty energy assets (like wind farms and solar plants) used to produce returns. The idea is to have a steady stream of predictable income -- such as that from power utilities -- fund a strong, sustainable dividend for the yieldco's investors.
TerraForm Global comprises the emerging markets renewable assets once housed inside SunEdison. TerraForm Power (NASDAQ: TERP), SunEdison's first yieldco spinoff, was handed the U.S. projects, plus the "emerged" foreign markets of Canada, the U.K., and Chile.
TerraForm Global's countries certainly have potential. The new yieldco has projects in Brazil, China, and India, to name but several. Those three in particular are eager to shift more energy production to renewable sources in the coming years.
In terms of financials, the entity that is now TerraForm Global would have posted revenue of almost $18 million in Q1 of this year, nearly double that of the same period the previous year.But the bottom line loss is deepening more severely. Across the same stretch of time it dove to $11.2 million from $1.2 million. From full-year 2013 to 2014, revenue rose 78% to $39 million... but the net loss was more than twice as bloody ($5.0 million vs. $2.3 million).
Emerging into uncertainty
It's obvious that the world needs and demands the renewable energy produced by the likes of SunEdison, the TerraForm twins, and whatever other family members might be created in the near future. But the question is, how will this impact the existing networks, particularly those dominated by well-entrenched incumbents? And if the renewables specialists are going to upset this status quo, which ones will succeed?
After all, there are a host of such firms competing out there. It's almost as if the segment is becoming the Wild West of energy, an increasingly crowded space filled with prospectors looking for gold. And it almost goes without saying that big emerging countries like China and India, if they live up to their renewable energy potential, could very well tap domestic companies for the work. There might be little need or will to bother with upstart foreigners like TerraForm Global.
So in some ways, investors might feel that Global is the SunEdison offspring stuck with the less promising assets. Given that the U.S. solar market is thriving now and probably well into the future, why roll the dice with dicier markets abroad?
TerraForm Global's IPO took place last Friday, July 31. The shares were priced at $15 apiece, and 45 million of them were sold for total gross proceeds of $675 million.The most recent closing price of the stock, was $13.66.
It's early days, of course. If TerraForm Global can win contracts and loyalty in the countries where it operates, it'll prove its worth as a stand-alone entity. But that's far from certain just now, and it could be a major reason why investors are not yet showing much interest in the stock.