TerraForm Global's Biggest Failures in 2016
The year 2016 was been a rough one for TerraForm Global Inc (NASDAQ: GLBL) . The company failed to submit financial reports on time because of its use of SunEdison's back office systems and millions in assets it had to write down. But there's been something of a recovery for the stock. You can see below that it's nearly doubled since hitting its lows of the summer, and has since seen some stabilization. But that doesn't mean there weren't some big failures in 2016.
The India acquisition that flopped
The biggest failure of the year is really a remnant of SunEdison's downfall in 2015. When SunEdison knew it was running out of cash it sold 425 MW of incomplete assets in India to TerraForm Global for $231 million. The yieldco agreed to the acquisition because it was fully controlled by SunEdison, an arrangement that ended when SunEdison went bankrupt. Even as the transaction was taking place, there were analysts ( the author included ) who noted just how fishy it looked.
In 2016 the India acquisition resulted in a full writedown of the 425 MW of India assets , which were never actually completed by SunEdison. And in bankruptcy there was little chance they would be completed and live up to their contractual obligations to sell energy to customers. This was a $231 million failure that was fully acknowledged in 2016 and shows just what a weak yieldco TerraForm Global was under SunEdison's control.
SunEdison still haunts TerraForm Global
Any public company needs to give investors periodic updates on its operations. That normally comes in the form of a quarterly earnings press release, potentially a presentation and meeting with analysts, and then a filing with the SEC. Because TerraForm Global used SunEdison's systems, it was unable to do any of the above after Q3 2015 until quite recently.
The failure on TerraForm Global's part was not operating as a completely separate entity to SunEdison so it could file the necessary paperwork with investors and regulators. This was a failure from the day the company was formed, but a failure nonetheless.
Current management is trying to break free of SunEdison's hold on the company, but it isn't there yet. The company has reported earnings through the end of the first quarter of 2016, but is still two quarters behind in filing earnings reports.
2017 needs to answer a lot of questions
It's easy to get lost in what could be for TerraForm Global. The previous dividend of $1.10 per share would leave a whopping 28% dividend yield if it still remained, but that's likely a pipe dream at this point. TerraForm Global's accountants have already raised questions about the company as a "going concern" , meaning it may not survive, and it's already technically in default of debt covenants and energy contracts.
We simply don't know what the company will look like if/when it becomes a more stable dividend stock, and investors betting on the stock today are taking a big risk that operations will get back to normal fairly soon. That's a tough ask for a company that's been disappointing investors almost since the day it went public.
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