Half-year results for wind farm developer Windlab’s released late on Friday, confirmed a $29.4 million write-down the company’s troubled Kennedy Energy Park project, with the company still not able to provide any certainty over when the project may finally commence operation.
Following the interim results release, Windlab’s shares went back into a trading halt on Monday, pending the outcome of negotiations on the company’s proposed acquisition by investment managers Federation Asset Management.
While Windlab said that it was now difficult to provide an accurate estimate of the value of the Kennedy Energy Park project, given ongoing delays to commissioning and an ongoing dispute with construction contractors, the company was optimistic the write-down reflected a conservative estimate of its value.
“Management has identified significant uncertainty around the valuation of Windlab’s investment in Kennedy, resulting from uncertainty over the project’s completion date and ongoing dispute with the contractor,” Windlab said in its results statement.
“The current carrying value is considered to be a conservative estimate, with potential for the impairments to be written back in the future if further delays are minimised and the dispute settled favourably”.
The Kennedy Energy Park is a 50-50 joint venture between Windlab and Japanese firm Company Eurus Energy and consists of 42MW of wind capacity, 15MW of solar and 2MW/4MWh of battery storage.
The project is running around 18 months behind schedule, after the project’s EPC contractor failed to secure connection of the project to the grid, preventing the commencement of commercial operations, with a start date remaining unknown.
Last week, Windlab told shareholders that it expected a to incur a $10 to $20 million impairment to the value of its share of the Kennedy Energy Park. At the same time, Windlab indicated that Federation wished to progress its proposed acquisition, and would proceed to the next stage of negotiations.
Windlab owns a 50 per cent share in the Kennedy project, meaning its share of the write-down totalled $14.7 million was a major contributor to Windlab announcing a loss of $12.2 million for the six months to 31 December 2019 in its half-year results.
The loss is a 177 per cent increase on the loss reported for the corresponding period in the year prior.
The company said that the write-down was partially offset by a $6.21 million reduction in the power purchase agreement liability, due to reductions in wholesale electricity prices.
Windlab is also confident that it will be able to recover as much as $6.8 million through a claim for delay liquidated damages from the construction contractor engaged to complete the Kennedy project, with Windlab saying it “believes that it has a contractual right to these amounts.”
The damages were the subject of an adjudication by the Queensland Building and Construction Commission, which ruled in favour of the contractor. Following the adjudication, the two sides called an effective truce, and entered into a dispute resolution process with the aim of settling the dispute without the need for further legal proceedings in the courts.
Following the half-year results estimate, the company’s shares were placed into a trading halt.
According to an announcement to the ASX, Windlab shares will remain in a trading halt pending the release of further information relating to the acquisition offer made by Federation Asset Management.
“The Trading Halt is to allow [Windlab’ appropriate time to consider the impact of notices that it has received and the impact that they may have on negotiations in respect of the non-binding and indicative proposal from Federation Asset Management Holdings pursuant to which funds managed or advised by Federation would acquire 100% of the issued capital of Windlab by way of a scheme of arrangement.”
There is no indication of the likely outcomes of these negotiations and whether Federation will proceed with the acquisition.
Federation has offered to acquire all outstanding shares in Windlab for $1 per share, valuing the company at around $70 million. The investment manager already holds an 18.4 per cent stake in the company.
Prior to the trading halt, Windlab shares were trading at 84 cents per share, which is down more than 10 per cent from the recent high of 95 cents following the announcement of the acquisition offer.
Windlab is expected to conduct a call for investors on Tuesday morning, while the company may remain in a trading halt until the commencement of trading on Wednesday.