Atlanta-based energy group Mirant said today it was closing its Berlin office and looking to exit risk management and marketing activities in Europe it expects to save the company $50m in annual operating expenses. The move signals a reversal of past strategy in which it has targeted Germany as one of its growth markets.
The announcement comes in the wake of a recent downgrade by rating agency Moody’s and is part of its new business plan focused on improving balance sheet strength and liquidity.
Mirant said it would be looking to sell all or a controlling interest in its current European marketing and risk management operations. Mirant expects to realize an additional $900m or more in after-tax proceeds from the sale of the Berlin utility, Bewag which it is selling to Vattenfall. This transaction is expected to close in mid-February.
The change in direction is likely to lead to job losses among Mirant’s 150-strong workforce in Europe. Approximately 100 of these employees are associated with the company’s marketing and risk management operations.
Marce Fuller, president and chief executive officer, Mirant admitted that the company had insufficient capital resources to continue with its strategy in Europe. “We have always believed that it is necessary to own or control assets in Europe, as well as have a significant presence in risk management. Despite our hard work in the European market, capital constraints do not make it possible for us to create the portfolio of assets required to justify our presence in risk management,” said Fuller.
Mirant did say it intends to contribute to the building, financing and operation of an 800 MW combined heat and power plant in Skogn, Norway through a the six-member, Norwegian industrial consortium, IMN in which it has a 40 per cent. Stake. In Italy it is in the advanced stages of developing several natural gas combined cycle plants which it intends to pursue.
Mirant also reaffirmed its commitment to its 49 per cent economic interest in, and shares management control of, Western Power Distribution, which distributes electricity to 1.4 million customers in southwest England, and 1 million customers in South Wales.
Yesterday Mirant issued a statement saying it had sufficient liquidity to conduct full business operations, despite the recent downgrade. “We currently have $750 million in available cash and credit lines. This amount is available even after posting additional collateral required in our risk management business and absorbing more than originally anticipated in a loan refinanced by our Asian business unit,” said Raymond D. Hill, chief financial officer.
The slump in value of the company’s debt and equity, along with others in the sector, has forced it to rethink its strategy with the returns on many projects now less than the cost of borrowing.
Mirant’s fourth quarter earnings figures are due out tomorrow.