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A new upper end for EGL borrowing

Editorial

In announcing the purchase of another power plant on the Kawerau geothermal field this week, Eastland Group (EGL) has established its path towards 100MW of renewable generation by 2025 but will stretch debt levels to what must be new limits for its owner Trust Tairawhiti.

When The Gisborne Herald sat down with the trust's CEO last July he said EGL debt levels were towards the “upper end” of the trust's expectations and significant new developments would need alternative structures or investors.(He would have been already factoring in EGL's planned $140m twin-berth port redevelopment over five years.) Bank facilities then allowed up to $305m of debt and the group's borrowing as of March 31, 2020 was $250m; 37.3 percent of then total assets of $670.4m.

There is no new investor for the $83m debt-funded purchase of the 25MW TOPP1 geothermal plant, which takes EGL's renewable generation capacity to 65MW. The community-owned company is also close to drilling a production well to confirm the case for developing a 25MW plant on the Rotorua geothermal field, supported by an $11.9m government grant. And in an interview this week group CEO Matt Todd indicated a first investment in solar generation was imminent.

As well as record low interest rates, EGL has some new borrowing headroom thanks to port revaluations helping take total assets to $750m; to be $835m with TOPP1 included, and a debt-to-assets ratio of 41 percent (so bank debt of about $340m).

The trust CEO also said last July that discussions were taking place on options to release some capital from EGL over the next five years. Asked if the 100MW target was part of a selldown plan for the generation business, Mr Todd replied:

“I guess everything is on the table as you move forward. My strong view is this is a business that has good growth opportunities, so I don't think you would sell down part of that lightly, but maybe you would.

“We're open-minded about what the future looks like. If we can continue to build and develop, so they have strong cash-flows off the back of them and can service reasonable amounts of debt . . .

“I don't think your first choice would be to sell anything. In the past we've looked at bringing capital into the business and it didn't work at that point of time, and yet we still found ways to continue to grow. I'm not saying that's not something we would consider in the future but the way we have worked historically has served us well.”