Prokon Reorganization The Profits Are Blowing in the Wind

Following bankruptcy last year, investors at German wind-farm operator Prokon now face a moral dilemma: Sell out to a large utilities firm, or choose a more risky greener alternative?
The dark clouds over Prokon's future may be beginning to clear.

As its financial situation became increasingly hopeless in early 2014, the management of the German wind-farm operator Prokon tried one last-ditch fightback. They sent a direct message to investors, who were withdrawing money at an increasing rate: “Don’t let locusts and energy companies pinch a model company in the capital market with a unique, fair philosophy for little money.”

The appeal was as dubious as it was unsuccessful. Managers had already been pilloried for their questionable financing schemes and the company declared insolvency just a few days later. Now, the long-threatened takeover of Prokon by a large energy company may actually happen.

According to information obtained by Handelsblatt, electric utilities company Energie Baden-Württemberg is making a play for the company. The third-largest German energy firm is not only submitting a bid as part of the insolvency proceedings, but sources say it’s the most attractive offer.

Prokon's creditors’ committee is slated to meet in the coming week, a spokesperson for insolvency administrator Dietmar Penzlin confirmed. Representatives of creditors will discuss at least one additional offer, it is thought.

Hamburg-based solar- and wind-park operator Capital Stage confirmed on Friday that it was interested in taking over Prokon with the help of a partner. EnBW, in contrast, refused to comment, but sources say the company has made a bid of around €500 million, or $558 million.

Does the wind energy company have a brighter future under a major corporation or in the hands of environmentally conscious investors?

If EnBW wins out over the other bidders, the company would have only cleared the first of two major hurdles. Mr. Penzlin plans to have creditors vote on two restructuring plans at the final meeting in July: a takeover by one of the investors selected by the committee or the conversion of Prokon into an investor cooperative.

The administrators face something of a dilemma. On the one hand is a cash offer from a heavyweight bidder promising job security for the almost 500 employees and strong strategic prospects. On the other hand, many of Prokon’s creditors want the company to remain independent and have already received substantial support in a straw poll taken in late 2014.

Either way, some 75,000 investors will likely lose more than half of their investment of €1.44 billion.

The Prokon case has become a warning against dubious financial investments in the gray capital market, or unofficial stocks. Founder and company head Carsten Rodbertus had wooed many small investors with the chance to invest in renewable energy, promising large returns from participatory notes.

However, he is said to have failed to sufficiently inform them of the risks and drove the company into bankruptcy. Since 2014, public prosecutors have been investigating Mr. Rodbertus and others in the company for delays in filing for insolvency, fraud and embezzlement.

The portfolio Prokon has built since its foundation in 1995 remains very attractive to EnBW, which is planning, constructing and operating onshore wind parks in Germany, Poland and Finland.

When Prokon filed for insolvency last year, it had wind parks with a capacity of more than 500 megawatts in operation, theoretically enough to supply more than 200,000 homes with electricity. Another 170 projects were in the pipeline. Prokon even developed its own wind turbines and also produced biofuel, but ran into financial trouble by doing too much too soon.

With one stroke, EnBW would take a major step in changing from a nuclear-power company to a supplier focused more on renewable energies while at the same time more than tripling electricity production from wind energy. Currently, EnBW operates only onshore wind parks with a capacity of 200 megawatts.

Frank Mastiaux, EnBW’s CEO, announced in 2013 plans to invest about €3.5 billion in renewable energies by 2020. Renewables will generate 30 percent of profits, twice the amount conventional power plants will contribute.

To investors who have united under the name “Friends of Prokon,” EnBW is still a representative of the old energy industry. They are trying to convince other creditors to consider their “investor cooperative” model, which would require investors to forgo the cash payout from sales of non-core businesses, such as an oil mill in Magdeburg in eastern Germany, or forests in Romania.

Instead, the cash payment would be made available as equity in a newly formed Prokon cooperative. The remainder of financing would come from a bond issue.

The higher the bids go, the more Prokon investors must be prepared to go without a cash payout. Insiders estimate that if about half the investors decide to remain involved, they can be just as successful as a cooperative while retaining their independence.

If they don’t succeed, another company that attempted to break down energy market structures will be swallowed by an established supplier. There is a precedent: Juwi, a wind energy company, last year fell victim to financial difficulties and was acquired by MVV Energie in Mannheim. Managers at EnBW had also taken a look at Juwi at the time.

This turns the Prokon case into an ideological issue. Does the wind energy company have a brighter future under a major corporation or in the hands of environmentally conscious investors?


Jürgen Flauger covers the energy sector for Handelsblatt, Gertrud Hussla specializes in financial issues and Sönke Iwersen is an investigative reporter. To contact the authors: [email protected], [email protected], [email protected]