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Proceeds from the sales will be used to buy out investors who had received an equity interest in a portfolio of the company’s assets in exchange for cash, according to a statement Monday. That will eliminate the need to issue equity over the next three years.
NextEra Energy Partners climbed as much as 14% in New York, the most since March 2020. Before the deal was announced, shares were down almost 25% this year. Parent company NextEra Energy Inc. rose as much as 1.6%.
“This transaction seems to primarily address the financing issue and the way the stock has been performing recently,” Paul Patterson, an analyst at Glenrock Associates LLC, said in a telephone interview.
The plan to offload assets for cash comes as inflation roils the global economy, making it increasingly expensive to obtain debt financing. Rising rates have more companies turning to equity markets for capital, stoking investor concern that shares will be diluted.
Offloading the pipelines will allow NextEra Energy Partners to focus solely on renewables as President Joe Biden’s landmark climate law boosts investment in the sector. The company, which has liquidity of $2.8 billion, is the publicly listed unit formed by NextEra Energy Inc. to buy wind, solar and other energy projects.
“What we’re announcing today is the ability to access a lot of new sources of capital,” NextEra Energy Chief Executive Officer John Ketchum said on call with analysts Monday, adding that ESG funds can invest in NextEra Energy Partners now that it’s a pure-play renewables business. He also said that the move would be good for shareholders in the parent company.
NextEra Energy Partners said it will sell its STX Midstream conduit in 2023 and its Meade pipeline in 2025. The company bought Meade Pipeline Co., owner of a pipeline that provides gas from Pennsylvania, in a deal valued at about $1.37 billion in 2019. STX Midstream, which owns pipeline assets in Texas, is a joint venture between NextEra Energy Partners and private equity firm EIG.
“The steps announced this morning should go a long way to curtail investor concerns with an extra bonus for investors in that they are selling gas pipelines, which traditional renewable investors generally never wanted them to own,” Guggenheim Securities analysts led by Shahriar Pourreza said in a note to clients Monday morning.
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