Australia renewables fund courts controversy with first investment

SYDNEY, June 13 Thu Jun 13, 2013 2:09am EDT

SYDNEY, June 13 (Reuters) - A renewable energy fund financed by the Australian government is set to sign a deal to help New Zealand's Meridian Energy increase its debt in a major wind project, freeing up more cash for the state-owned generator ahead of its planned IPO, three sources close to the deal said.

Its proposed A$100 million-plus loan to the 420MW Macarthur windfarm project in the state of Victoria would be its first investment, but has raised concerns about the use of Australian public funds to undercut existing lenders and help a New Zealand state-owned company repatriate funds out of Australia.

The Australian government set up the Clean Energy Finance Corp (CEFC) in 2012 with A$10 billion ($9.5 billion) to invest in clean energy projects.

"We remain opposed to the Clean Energy Finance Corporation putting at risk A$10 billion of borrowed taxpayers' money," said Greg Hunt, the opposition Liberal Party's Shadow Minister for Climate Action, Environment and Heritage.

"We have always been critical of the CEFC being a direct competitor to those already in the renewable sector."

Meridian Energy, New Zealand's biggest power generator, is re-financing its 50 percent stake in the A$1 billion Macarthur project and wants to sell its stake in the wind farm ahead of a planned initial public offering expected later this year, set to be New Zealand's largest.

Sources said Meridian has short-listed bidders for the sale, without providing further detail.

AGL Energy owns the other 50 percent interest in Macarthur, the largest wind farm in the southern hemisphere.

Macquarie Capital, the investment banking arm of Macquarie Group, is advising Meridian on the financing and sale of its stake in Macarthur.

The Australian-listed investment bank also scooped up the lucrative mandate to float Meridian, together with Deutsche Bank , Craigs Investment Partners and Goldman Sachs .

A Meridian spokeswoman confirmed the sale of its stake in Macarthur was being considered but declined to provide further detail on the refinancing or future dividend payments to the New Zealand government.

Meridian is increasing its debt by around A$170 million to around A$550 million, the sources said, with the CEFC providing over A$100 million of the debt.

"The CEFC is competing with banks which is outside their mandate," said one of the sources.

CEFC's Yates declined to comment on whether Australian tax payers should be funding a payment distribution to the New Zealand government by its involvement in the financing.

"Unlike traditional financial institutions, the CEFC doesn't seek maximum profits but seeks to cover operating and funding costs and to use the potential to make higher profits to secure public policy benefits and reduce the cost of moving to a lower carbon economy," he said in an emailed response to questions.