Saturday, Sept 8 I received one that kind of piqued my interest that tantalised with the possibility of investing in a TSX listed USD dividend payer operating geothermal energy in Nicaragua. Normally, with these advertisements you have a hell of a time trying to glean what company, but this time... this time it was way too easy. Google "Nicaragua Geothermal TSX" and you will get a few hits for "Polaris Infrastructure". If I am right, then that was way too easy and that makes me get the feeling to "do the opposite".
I have no skin in the game for this one, but phrases like "fat dividend", "escalating fees", and "no competition whatsoever" is enough to at least get you thinking what if I bought in. The advertisement does note the risk of "unfortunate recent turmoil" as a risk. Googling Nicaragua you get the news hits... many dead in protests... Ortega. Wow. Even a lengthy New Yorker article all the way back in April 2018 (It's September 2018) https://www.newyorker.com/news/news-desk/nicaragua-on-the-brink-once-again paints a dire situation down there. What is truly going on down there is anyone's guess as I am up here far away.
Next looking up the company Polaris Infrastructure, you do see that "fat dividend". On Friday September 7 closing the stock was $10.77 CAD (https://web.tmxmoney.com/quote.php?qm_symbol=pif) and yielding the upper of 6% annualized and paid quarterly in USD terms. Pretty sweet.
Seeking Alpha has some informative posts as well. The last unlocked article https://seekingalpha.com/article/4203894-polaris-infrastructure-get-crushed-falling-knife (as of my posting today) is more negative to the political risk.
Reading comments from the post and on forums there is a general feel on the bull side that the World Bank has their back and that the government wouldn't nationalize and asset such as this centrepiece Nicaraguan renewable energy project. While on the Bearish side you pretty much have the whole political risk from change in government to nationalization to crumbling economy.
Of all that I can't really add much more. I spent a few hours tonight attempting to delve deeper into the company in order to try understanding the argument of not wanting to piss off the World Bank by defaulting and such. It all seems messy to me and admittedly, this is definitely not my forte. However, here is what I could gather and interpret:
Ram Power does not directly own the geothermal San Jacinto project. It owns it indirectly via its subsidiary Polaris Energy Nicaragua, S.A. (PENSA).
Polaris Energy Nicaragua, S.A. (PENSA) was able to develop San Jacinto via loans arranged through the International Finance Corporation (IFC), which is a member of the World Bank. https://ifcextapps.ifc.org/ifcext/pressroom/ifcpressroom.nsf/0/3BEDDCFA8FC0F21B852577D500568985?OpenDocument
PENSA pays distributions to the parent company: Ram Power. Hence, the source of revenue for Ram Power is PENSA itself.
PENSA was heavily indebted and was in default on its credit facilities. As a result of this, PENSA was not allowed to pay out distributions. This meant Ram Power was no longer receiving any income.
Polaris Infrastructure, as we know it today, is the result of a recapitalization of the previous company is called "Ram Power".
May 13, 2015 Ram Power through an agreement with Private Equity Firm Goodwood Inc was able to convert $53mm of Ram Power's outstanding 8.5% senior debentures into equity. Plus a private placement of shares to raise $60mm. Essentially, diluting the existing shares by over 25%, which was afterwards consolidated 2000:1. (ouch?)
PENSA credit facilities were also amended as part of the deal using details from April 20, 2015. "revision of the payment schedule (including increasing the term of the Credit Facilities by four years), a reduction in the amount of capital required to be funded into each of the debt service reserve account and major maintenance reserve account on an ongoing basis, a potential reduction in the interest rates of up to 1.5% over three years (provided certain conditions are met), the deletion of certain hourly output covenants and the postponement of certain financial covenants, all of which are expected by Ram Power to result in it being in a position to begin receiving distributions from PENSA in 2016. The Company also expects that the effect of these changes will result in total debt service in 2016, inclusive of both principal and interest payments, being reduced to approximately US$22 million."
Recap: In 2015 was the subsidiary PENSA was so indebted they were in default and could not pay distributions to the parent company Ram Power. Ram Power as a result went into financial difficulties of its own. The solution was to convert debt into equity and raise additional funds via issuing additional shares. PENSA was able to relax debt requirements allowing it to save on interest payments.
- April 20, 2015: Ram Power, Corp. Announces Private Placement and Recapitalization Transaction https://www.newswire.ca/news-releases/ram-power-corp-announces-private-placement-and-recapitalization-transaction-517454341.html
- April 30, 2015: Ram Power, Corp. Announces Private Placement and Recapitalization Transaction https://www.newswire.ca/news-releases/ram-power-corp-announces-private-placement-and-recapitalization-transaction-517454341.html
- May 13, 2015: Polaris Infrastructure Inc. (formerly Ram Power, Corp.) announces closing of recapitalization transaction https://www.newswire.ca/news-releases/polaris-infrastructure-inc-formerly-ram-power-corp-announces-closing-of-recapitalization-transaction-517714941.html
There's the "World Bank loan" that people were thinking about. It appears to be held within the subsidiary that owns and operates the actual San Jacinto geothermal asset. The debts appear to be there still albeit with extended terms.
Here's where Polaris appears to be going next. They want to continue expansion of the San Jacinto asset. Plus they have been actively looking into developing another asset called the Casita Project.
This is Casita Project is another of these "World Bank loans" and is much more obvious as it is written right in the latest quarteries/Management's Discussion and Analysis. Except, if you read it, this "World Bank loan" is very preliminary exploratory work and not actual funding of a new geothermal facility. This means if they get the loan and exploration is successful they will still need additional financing to plan, source, and build a new geothermal plant.
The plus side PENSA has been paying down debt with $164.6mm to go as of June 30, 2018. Additions to San Jacinto is also increasing free cash flow, which is beneficial. Then we have the next downside, a) the cost and b) they specifically state further investment for their binary unit (add on generating unit, no drilling/exploration needed) is delayed due to the muddy Nicaragua investment climate.
"The Company has entered discussions with The World Bank Group (the “World Bank”) and the Nicaragua Ministry of Energy and Mines with respect to financing for purposes of completing an initial drilling program at the Casita project. To the extent the Company can complete the contemplated financing, it would enable an exploration drilling campaign at the Casita project without requiring cash flow from our San Jacinto project, and on a non-recourse basis to both the Company and PENSA. Discussions with the World Bank and the Nicaraguan Ministry of Energy and Mines are ongoing, and we will provide further updates as appropriate."
http://polarisinfrastructure.com/wp-content/uploads/2018/08/PIF-2018-Q2-MDA-2018-08-07-FINAL.pdf
Does this mean anything to investors? I... really don't know. Or I'm tired because it's almost 2:00am ET and need to get up in 4ish hours to go to work, but the iffy thing is how ownership of the asset is held in the subsidiary PENSA. The subsidiary is saddled with debt and even if it is working on paying it off there are upcoming expenses that do require additional financing. Keeping in mind the second World Bank loan for the Casita Project is stated to be only for exploration. Continued political risks means investors may be leery of funding them. If the current political situation escalates we may be looking at additional risks.
The company is likely cognizant of the having their only egg in one basket and apparently responded to a question that they are looking for acquisitions. Financing again would be the big question.
What ifs about, but perhaps if not outright nationalization there could be other things to worry about like a slowing down economy. Increased costs and outages (they took down a drill site and lost a couple mega watts of production). These things could culminate into issues for PENSA. If the income generator for Polaris Infrastructure: PENSA is in trouble then Polaris will be in trouble. At what point could PENSA be in trouble is unknown.
Back to MF. The easily deduced advertisement was suspicious in my mind. Does the Monday September 10 ramp up in share price coincide with that suspicion? Or was it that Ortega said he would meet Trump (https://www.reuters.com/article/us-nicaragua-protests-ortega/nicaraguas-ortega-ready-to-meet-trump-despite-us-threat-idUSKCN1LQ1HK)? If any meet up occurs at the UN and turns out ok the stock should see additional gains. Ortega stating his willingness to talk could be a good sign in itself. Definitely any resolution would pump up PIF.
Polaris Infrastructure Inc.
Exchange: TSX Exchange | Sep 11, 2018, 1:57 AM EDT
PIF
$ 12.07 
Change:
1.29 (11.97%)
1.29 (11.97%)
Volume:
106,442
106,442
Day Low 11.09
Day High 12.60
"Nicaraguan President Daniel Ortega said on Monday he is open to meeting U.S. leader Donald Trump at the United Nations later this month despite expressing concerns that the United States could launch a military intervention on his country.
...
Ortea said he would be prepared to meet Trump if it could be arranged.
“The idea of having a dialogue with a power like the U.S. is necessary,” said Ortega, interviewed in Spanish with English translation. “It could be an opportunity (to meet Trump) at the United Nations General Assembly (UNGA). I’d like to go.”
The annual gathering of world leaders starts on Sept. 24 at the U.N.’s headquarters in New York."
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