Hydro-Québec's investment in Innergex of nearly $775 million continued to decline and has now lost more than half of its value.
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In February 2020, Hydro-Québec CEO Éric Martel announced a $660.9 million investment to acquire a 19.9% stake in the renewable energy producer. A few weeks later, the manager left the state-owned company to take over the management of Bombardier.
Hydro then spoke of “a milestone in the implementation of its growth strategy”.
In 2021 and 2022, Hydro reinvested $112.7 million in Innergex to maintain its relative weight in the company following the share offerings carried out by the latter. The state-owned company has therefore invested a total of $773.5 million in Innergex since 2020, at an average price of $19.12 per share.
The company's shares closed at $8.42 on the Toronto Stock Exchange on Wednesday, meaning Hydro's investment is now worth just $340.7 million – down $432.8 million. dollars or 56%.
Like other companies in its industry, Innergex was hit hard by the sharp rise in interest rates, which led to an increase in financing costs. It was also affected by weather hazards.
An Innergex wind farm in Chile. Photo from Innergex website
Dividend cut?
In a note published on Tuesday, National Bank Financial Markets analyst Rupert Merer predicted that Innergex could announce a reduction in its dividend, which currently offers a relatively high yield of 8.6%.
“A [dividende] lower would allow it [à Innergex] to pursue a more flexible strategy to take advantage of new business opportunities in Canada and elsewhere around the world,” Mr. Merer wrote. According to him, a cut in the dividend would not necessarily lead to a further decline in Innergex's share price.
It is interesting to note that the decline in the company's market value will not necessarily be reflected in Hydro-Québec's financial results. This considers investing in Innergex “at equity value” rather than fair market value.
“You record your investment at cost and then add to this value the net profits or net losses of the company relative to your investment,” explains Marc-Olivier Thivierge, lecturer in accounting at the University of Laval.
Marc-Olivier Thivierge Photo from Laval University website
“If the value of the company falls massively on the stock market and we do not believe that we can recover the full value of the investment, then we have to write it off. “Otherwise, the value in the financial statements will not correspond to the fair value of the investment,” he continues.
Depreciation?
Will Hydro's auditors judge that the Innergex debacle of recent months was serious enough to justify writing off the investment in its annual accounts? We'll find out later this month when the national company's annual report is published.
If necessary, Hydro-Québec's profits could be affected, as could the dividend paid to the government, which represents 75% of net profits.
Jean-Pierre Finet, analyst at Regroupement des organisms Environnemental en Énergie, does not believe that the potential losses associated with the investment in Innergex would have an impact on tariffs for Hydro customers.
However, he wonders whether the decision to mobilize so much money in a private company could affect the state-owned company's ability to finance its own investment projects, which are enormous.
“One thing is for sure, it can’t help,” he says.
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