Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

The power provider to cruise ships docked in Nassau is predicting it will more than double annual profits within two years of launching - and beat the $10m mark by year four - as it yesterday unveiled its $100m bond offering.

Island Power Producers, which will supply liquefied natural gas (LNG) fuelled electricity via an underwater cable linking its Arawak Cay power plant to the Nassau Cruise Port, forecast in the offering documents that total revenues will quickly ramp up and grow by $31.8m or 72.6 percent during its first six years in operation.

Total top-line income is projected to rise from $43.85m in year one to $75.696m by year six, aided by the fact it faces no competition (an effective monopoly) in the provision of shore power to what is a captive customer base in the shape of cruise ships whose parents have deep pockets and an ability to pay in full and on time.

However, Island Power Producers’ financial projections also show it expects to generate almost as much revenue from “other” power purchase agreements (PPAs) and what appears to be the supply of LNG fuel to other electricity generation providers in the Family Islands.

As an example, by the sixth year of operations, while the sale of energy to cruise ships is forecast to generate just over half of Island Power Producers’ revenues for that year, or $38.88m out of a total $75.697m, the remainder is shown as coming from $32.065m worth of LNG supplied to the Family Islands and $4.752m derived from the “other” PPA.

The latter almost certainly refers to the possibility of Island Power Producers selling excess power that it generates, and which is not consumed by the cruise ships, to Bahamas Power & Light (BPL) as part of the Government’s wider energy reforms. The $100m bond offering memorandum specifically alludes to this, stating: “Contingent upon demand signals identified in the Integrated Resource Plan (IRP), an agreement with BPL may be realised in the future for excess power sales.”

Island Power Producers, meanwhile, is forecasting that operating income or earnings before interest, taxation, depreciation and amortisation (EBITDA) will grow from $18.154m in the first year of operations to $26.198m by the sixth year, with corresponding margins moving down from 41.4 percent to 34.6 percent.

Profits, meanwhile, are forecast to more than double from $4.029m in the first operational year to $9.403m in the second, with the $10m mark breached in the fourth year and annual net income remaining above this subsequently. Net income margins were shown as rising from an initial 9.2 percent to 13.5 percent by the sixth year.

Island Power Producers, with help from CFAL, its financial adviser and placement agent, is seeking to raise the remaining $100m balance of its total $179.025m financing via the imminent November 6, 2025, launch of a bond issue offering investors an 8 percent interest coupon.

Interest will be paid on the bonds at half-yearly intervals beginning on May 31, 2027, which means investors will be locked in for around 18 months before they start to receive their first returns. The Island Power Producers bonds carry a 20-year maturity, meaning that principal is due to be fully redeemed by November 30, 2045, with these payments set to occur in ten annual installments starting in 2036.

“The project will require $180m in initial financing, which will be sourced via debt and equity in tranches,” the Island Power Producers offering memorandum disclosed. “Sixty-nine million dollars in equity was raised via two tranches, one for accredited investors and one for retail investors.

“Debt will be raised via a mix of bank and bond financing. Island Power Producers has also secured a $25m loan facility at a rate of 5.5 percent, which will be paid off via this bond offering.” Thus the shore power provider will be partially paying off and refinancing existing debt, albeit at a higher cost via the 8 percent interest coupon.

“To sustain itself, the company will bill cruise ships for power consumption while in port. Power will be routed via submarine cable. The average cruise ship stays in port for eight hours per day and, on average, there are 4.7 cruise ships per day drawing 7 mega watts (MW) of power.

“The rate charged to cruise ships would be $0.25-$0.30 per kilowatt hour (kW/h), which will allow the company to service its debt and maintain operations. The company will also sell natural gas to various Family Island projects.”

Island Power Producers’ combined cycle LNG plant will be capable of generating a maximum 70 MW. “It is anticipated that more than 1,500 cruise ships will visit the country in 2025,” the offering memorandum said of likely energy demand.

“While in port, these ships continue to run their engines as the country is unable to meet the demand for power given existing challenges with generation and reliability. To address this issue, the company will build a natural gas power plant which will provide shore power to cruise ships while docked in port.

“Phase one of the project, which involves the installation and operation of the LNG turbine, is expected to be complete by the end of the 2026 third quarter. The company expects to be able to begin the distribution and sale of LNG by the end of the 2026 third quarter, with the shore power facility operational by the end of 2026,” Island Power Producers added.

“The second phase of the project – the installation of the steam turbine - is expected to be completed a year later at the end of the 2027 second quarter, subject to demand which will complete the combined cycle.” The bulk of Island Power Producers’ capital investment, some $114m of the total $179m, will be devoted to LNG infrastructure and the combined cycle power plant, which will cost $48.21m and $69.69m, respectively.

The remaining budget is then split into $23.92m for shore power infrastructure; $20.5m for civil works; $11.135m for transmission and distribution; and $9.57m for a substation. However, the bond documents reveal that Island Power Producers has yet to pay the full deposit for critical equipment to be supplied by its partners.

“To date, the company has paid a 90 percent deposit to Siemens for the generators,” it said. “The company has also paid 50 percent of the contract for the supply of the natural gas infrastructure to Inox India.” The project is also billed as reducing The Bahamas’ carbon dioxide emissions by 139,649 tonnes per year; improving grid stability and reliability; and making natural gas available to commercial vehicles as well as lowering energy prices.

Island Power Producers’ Board includes Charles Farquharson, the former Morton Salt general manager and Bacardi/Source River executive, as well as Dr Ricardo Crawford, registrar of the Bahamas Dental Council, plus Angelo Butler, CFAL’s manager of corporate advisory services.

Apart from Erold Farquharson, a contractor, who is the company’s managing director, all other members of the executive and management team appear to be expatriates. However, Island Power Producers’ advisory Board features Anthony Ferguson, CFAL’s president, Michael Maura, Nassau Cruise Port’s chief executive and chairman of Arawak Port Development Company (APD), and George Mosko, president of Island Site Development.

Mr Maura previously told Tribune Business that the shore power project, which will not only involve offloading LNG at Nassau Container Port but transporting it to the generation plant via a pipeline running underneath the port’s property, will create a new revenue stream for APD that will help to reduce the need for any tariff increases to be imposed on imported goods and services.

“It’s a new cargo source type for APD,” Mr Maura explained. “The beauty of it is, in my view, that it doesn’t have an operational cost for APD. You have LNG moving off the ship, running on a pipeline underneath and moving through APD’s property. APD will collect a toll on that.”

Besides Nassau Cruise Port and APD, the other investors in the Island Power Producers consortium include Crowley, the shipping company, which will be responsible for transporting the LNG fuel to Arawak Cay and its subsequent offloading. Siemens will supply the generation equipment and manage/operate the plant, with Crowley operating the LNG facility.

Mr Ferguson did not respond to Tribune Business calls and messages seeking comment before press time last night. The bonds will not be listed on the Bahamas International Securities Exchange (BISX), meaning a liquid market for buying and selling these debt instruments may not develop, and investors may find it difficult to enter and exit. Minimum subscription is set at $50,000 or ten bonds, with further increments of $10,000.