Drax in talks to buy assets from Iberdrola

Drax confirmed on Monday that it is in talks with Spain’s Iberdrola about the potential acquisition of a UK portfolio of pumped storage, renewable hydro and gas-fired generation assets.

"The discussions are preliminary in nature and there can be no certainty of any agreement or the timing or terms of any such agreement," the company said in a statement following press speculation over the weekend.

It added that any potential acquisition would be fully debt funded and subject to shareholder approval.

A further announcement will be made as and when appropriate, the company said.

RBC Capital Markets said the news was not entirely surprising given Drax’s ambitions to expand its UK generation footprint into more flexible and low carbon assets.

"We have also previously highlighted the strong balance sheet and free cash flow at Drax which was available for shareholder returns or potential reinvestment. Overall we see this potential transaction as positive for the Drax investment case in terms of diversification, scale and use of balance sheet capacity."

RBC added that a deal would not impinge on Drax's ability to pay a sustainable and growing dividend.