In the governance and management of Innergex’s ambitious project development program and numerous acquisitions, prudence has always been the maxim of the management team and Board of Directors. Our priority remains to ensure the sustainability of the dividend by monitoring the Company’s capacity to generate the expected cash flows from its ever-increasing number of facilities in operation.
In 2013, Innergex continued its impressive growth, with the commissioning of one wind farm, the completion of two hydroelectric facilities that were commissioned effective December 18, 2013 and January 1, 2014, the beginning of construction activities at three hydroelectric projects under development, the acquisition of a hydroelectric facility, and the negotiation of a power purchase agreement for a significant wind energy project. These achievements have provided management and the Board of Directors with the comfort level they need to raise the annual dividend on the Company’s common shares to $0.60 per share, representing an increase of 3.4%.
This decision attests to our confidence in the Company’s ability to generate stable cash flows that are amply sufficient to maintain its dividend policy. Moreover, it attests to our confidence in the Company’s prospects for the future.
Limited exposure to the rise in interest rates
Although they may appear worrisome, interest rate increases have little impact on the Company’s activities, thanks to its resilient business model.
• Approximately 98% of the Company’s outstanding debt is either fixed or hedged against interest rate fluctuations through the use of derivative financial instruments.
• The refinancing of operating facility debt instruments that are maturing in the coming years is protected from interest rate fluctuations by means of derivative financial instruments put in place at the time of the initial financing.
• The financing for projects that the Company is currently developing is subject to a hedging program in order to lock in the base interest rate through the use of derivative financial instruments until the Company closes the project-level financing. At the time of writing, this hedging program was essentially complete for four of the five development projects, effectively eliminating the projects’ exposure to interest rate fluctuations.
• The Company’s prospective projects, which do not yet have a power purchase agreement, will be priced in accordance with interest rates prevailing when they are submitted under a request for proposals or when negotiations begin.
For Innergex, shareholder value is created through the sustainability of the dividend and its potential to increase commensurately with the development or acquisition of high-quality renewable energy production facilities that generate stable cash flows.