First of many investments

  • Talbot Babineau is the chief executive of IBV (Photograph by DaleWilcox/DWP)

    Talbot Babineau is the chief executive of IBV (Photograph by DaleWilcox/DWP)


Last year, we at IBV Capital shared our views on the extensive sale process Ascendant Group was conducting to find a suitable buyer for the company. Since then, Ascendant Group has entered into a sale agreement with Algonquin Power&Utilities Corporation and shareholders have overwhelmingly approved the proposed transaction.

Today, we are nearing the completion of a robust regulatory and ministerial review of the transaction and a decision on whether to proceed will be made soon.

As an investor from Canada that owns more than 10 per cent of Ascendant Group, we would like to offer our unique perspective on the long-term implications of this deal for customers, employees and Bermuda.

Ascendant Group is a distinctly local company that carries a unique history. Its importance, and specifically that of Belco to the social and economic fabric of Bermuda is tangible. We appreciate that electric utilities, including Belco, share the common characteristic of providing their communities with critical infrastructure and understand that this feature justifies the intense regulatory oversight they assume.

In Bermuda’s case, oversight has come in the form of the Electricity Act 2016 and the independent Regulatory Authority. We were supportive of these regulatory advancements, as they promoted a stable and predictable framework on which Belco could continue to be built. As the merits of Algonquin’s purchase of Ascendant are being contemplated, the Regulatory Authority’s founding principles warrant attention and we have highlighted them here:

• Promotion of effective and sustainable competition

• Investment and the adoption of innovative technologies for renewable energy, energy efficiency and conventional energy

• The protection of the rights of consumers and end users

Importantly, these principles are to be maintained and administered independent of the ownership structure of Belco. As such, it should provide comfort to all Belco stakeholders that the Regulatory Authority was created by Bermudians to protect the interest of Bermudians, and that will not change. Regardless of who Belco’s owners are.

With the protection of Bermuda’s interests guaranteed through the existence of the Regulatory Authority, we can now focus on assessing the suitability of Algonquin as the future steward of Belco.

Last year, at the outset of Ascendant Group’s sale process, we expressed the importance of selecting the right buyer to Ascendant’s board and management team. They were equally focused on this consideration and acknowledged that it was a primary factor in their decision-making process. By all accounts, they have selected their partner wisely.

Algonquin has built a widely respected reputation because it consistently places the interests of its customers, employees and the communities it serves first. This community-centric approach is evident throughout the proposal that accompanied its offer to purchase Ascendant, and gives us confidence that all stakeholders will feel the positive impacts of its ownership.

For instance, an immediate intangible benefit to Bermuda will be the financial and operational stability that Algonquin can bring to this critical piece of infrastructure. In a normal operating environment, its experience running 2.2 gigawatts of gross generating capacity will directly translate into the safe production of reliable electricity.

With the inherent strength of Algonquin’s more than 2,200 employees and the $9.2 billion it has allocated to a five-year capital spending programme, it is impossible to ignore its ability to minimise the future electrical power interruptions caused by hurricanes and any other natural causes that Bermuda is bound to experience.

We also expect its ownership will lead to electricity prices that will be lower than what Ascendant could be reasonably expected to achieve as an independent company. For instance, Algonquin has already identified $5 million in operational efficiencies. We expect the extent of permanent annual cost savings will increase over time as Algonquin fully integrates Belco into its family of utilities.

From our perspective, an underappreciated cost-saving tool Algonquin can utilise is its healthy access to capital markets. One of the largest inputs into customer electricity rates will be the cost of the equity and debt used to build and maintain Belco’s generation plants and transmission and distribution wires.

Undoubtedly, Algonquin can obtain cheaper financing than Ascendant Group. Since Algonquin’s cost of capital will be lower, it should cost less to operate Belco, generating more savings that it can pass on to customers.

Ascendant’s present and future employees will also experience an opportunity to thrive. Since we invested in Ascendant, we have witnessed an impressive reawakening of the company’s ingenuity and competitive spirit. Algonquin must have identified this, too, as it has committed to no company-initiated job cuts and ensured that any future job vacancies will be filled with Bermudians.

Importantly, Algonquin is uniquely positioned to build on the positive momentum Ascendant has already created by offering employees enhanced training and a broader set of career opportunities.

It is evident that Algonquin’s Bermuda-centric approach permeates every element of its proposal. Its enthusiastic adoption of the Integrated Resource Plan mandate to transition to increased renewable-energy generation was music to our ears, too.

It will achieve this by directing a $300 million investment into renewable energy. Clearly, Ascendant has selected an investment partner that is committed and capable of delivering the renewable-energy future Bermuda is working towards.

While the benefits of Algonquin’s ownership of Ascendant are clear, we would like to share our unique perspective as a foreign investor in Bermuda to surface another critical consideration: Bermuda’s status as a jurisdiction that is receptive to foreign direct investment.

The importance of foreign direct investment to the economic growth of a country cannot be understated. As we have witnessed throughout financial history, without it, a country’s economy will operate well below its potential.

In today’s unprecedented investment environment, countries will be seeking to attract outside capital to revive their stalled economies. As the competition for these investments will be fierce, open attractive investment jurisdictions will economically thrive, while their closed insular counterparts will undoubtedly struggle.

To date, our experience indicates that the prerequisite investment conditions — for us and all other foreign investors — of an environment with inclusive political and economic institutions already exists. As such, the successful completion of the Ascendant transaction can be used to confirm to the international investment community that future investments in Bermuda will be welcome.

This is an enormous and timely opportunity that can and should be capitalised on by all stakeholders.

At IBV Capital, we are exceptionally proud of Ascendant’s accomplishments over the past few years. Equally exciting is the prospect that the positive investment conditions we identified will be upheld and enhanced. We look forward to Ascendant Group symbolising the first of many investments in Bermuda.

Talbot Babineau is the chief executive of IBV Capital

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Published May 2, 2020 at 8:00 am (Updated May 2, 2020 at 8:24 am)

First of many investments

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