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ESBI builds equity team Back  
ESB International Investments has recruited Cormac O’Rourke as investment director for international business. The move signals that ESB International is continuing to expand its equity investment in power stations internationally as it heads into the territory of privatisation in the next few years.

O’Rourke moves from KBC Bank where he has worked for the last twelve years, latterly as director of project finance. He makes the somewhat unusual transition from banker to equity investor in power stations.

ESB is unique in Ireland as an equity investor internationally in power stations, said Kevin McNamara, Managing Director of ESB International Investments.

ESBI Investments currently has 25 people working out of Dublin, Malaysia and Abu Dhabi. The overall head of the business within ESB is Donal Curtin, who also looks after Ocean.

One of its ESBI’s investments was a 20 per cent stake in the Corby power plant in the UK. It has also taken equity stakes ranging from 8 per cent to 24 per cent in power stations in Pakistan and Guyana. It currently bids to construct power plants in Derry and in the Basque country in Spain.

Most power stations are also project financed by banks, with equity not being the main component. ESBI would typically look at investments ranging from US$20 to $30 million, explained McNamara. The investments are measured by ESBI primarily on an expected internal rate of return. ESBI would not confirm what its hurdle rates were. The anticipated size of ESBI’s portfolio of investments is around US$200 million, although this is subject to board and political approval.

ESBI investment role is distinct from that of an industrial holding company, and even a venture capitalist, insofar as it will take operational contracts in the power stations it invests in.

The expected return depends a great deal on the risk characteristics, McNamara told Finance. Critical elements were whether a plant had a reliable fuel supply and a guaranteed power off-take. ‘In the early 1990s you could get returns on equity in the early 20s in the UK, but margins have decreased significantly, even as you will not longer get guaranteed off take in that market. You are taking an equity risk on the market for electricity demand,’ ESBI Investment’s managing director said.

‘Now returns are likely to be in the mid to low teens in Western Europe and higher in developing countries or emerging markets.’

There is no shortage of capital for this type of investment internationally, although institutional investors are not heavily involved yet. ‘Once you get a good project, others will beat you to death looking to get in the door. It’s very competitive’, McNamara summarised.

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