
PEP looks to cut OPTrust into Zenith Energy deal

Pacific Equity Partners (PEP) wants to bring OPTrust into its bid for Australia-listed off-grid power provider Zenith Energy after the Canadian pension fund built up a sizeable position in the company.
PEP's secure assets fund – which targets Australasian companies in areas such as energy, logistics, telecom and healthcare that generate annuity income with the potential for private equity-style operational improvements – offered to buy Zenith for an enterprise valuation of A$250 million ($163 million) in early March. The company's board agreed to a scheme of arrangement at a price of A$1.01 per share. The stock had traded in a range of A$0.65 to A$0.75 since the start of the year.
OPTrust entered the fray on April 6 – by which point Zenith's stock was trading at A$0.96 – and bought up 23.1 million shares, or a 15.45% stake in the company. Two weeks later, the pension fund increased its position to 17.61%. PEP has requested permission from the Zenith board to pass due diligence information to OPTrust with a view to including it in the consortium, according to a filing. The GP warned that the scheme might be difficult to implement if OPTrust voted against it.
As of early afternoon trading on May 8, Zenith's stock was trading at A$0.98, flat for the day. This gives the company a market capitalization of approximately A$145 million.
Zenith specializes in cost-effective power generation systems for installation in remote, off-grid areas of Australia and Southeast Asia. Fuel sources include diesel, gas, solar, and hydro technologies, with some projects being hybrids. Contact options include a build-own-operate model whereby Zenith takes full responsibility for an operation, and a manage-operate-maintain model, whereby clients maintain ownership.
Income is generated primarily from sales of electricity and contracts for engineering, procurement and construction work. Revenue improved 7% during the 2019 financial year to about A$55 million, with the company citing strong growth in build-own-operate contracting. Profit declined 31% to A$5.8 million, which was attributed in part to increases in project-related depreciation charges and finance costs.
OPTrust had C$27.1 billion ($19.4 billion) in total assets at the end of 2019, with a 12.9% allocation to private equity. The private markets program – which covers several asset classes – started in 2005 but already accounts for nearly 30% of the portfolio. OPTrust established a Sydney office in 2012 and has a team of five covering private equity and infrastructure. There is a 50-50 split between fund and direct investments, with the latter highly concentrated on deals in Australia.
There is a preference for long-dated investments – perhaps longer than most GPs would like – at the nexus of private equity and infrastructure. The portfolio includes SkyBus, which operates airport shuttle and public bus services, and Judo Bank, a lender to small and medium-sized enterprises (SMEs).
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