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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Nextenergy Solar Fund Limited | LSE:NESF | London | Ordinary Share | GG00BJ0JVY01 | RED ORD NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 82.70 | 82.10 | 82.70 | 207,309 | 08:31:57 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Investors, Nec | 66.03M | 48.32M | 0.0818 | 10.11 | 488.61M |
TIDMNESF
RNS Number : 1150E
NextEnergy Solar Fund Limited
16 October 2018
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA.
The information communicated in this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this information is considered to be in the public domain.
LEI: 213800ZPHCBDDSQH5447
16 October 2018
NEXTENERGY SOLAR FUND LIMITED (THE "COMPANY")
Issue of Preference Shares, amendments to the Company's articles of incorporation and investment policy (the "Proposals")
Introduction
The Company announces that it has entered into a conditional subscription agreement with AIP Solco Limited (the "Investor"), a wholly owned subsidiary of AIP Infrastructure LP, an investment vehicle backed by three BAE Systems pension schemes and managed by Arjun Infrastructure Partners, pursuant to which the Investor had conditionally agreed to subscribe GBP100,000,000 for 100,000,000 new non-voting Preference Shares (the "Subscription").
The Preference Shares will carry a preferred right to dividends, at a rate of 4.75%, and to capital in a liquidation. From 1 April 2036, the holders of the Preference Shares (the "Preference Shareholders") will have rights to convert all or some of their Preference Shares into either ordinary shares of no par value in the capital of the Company (the "Ordinary Shares") or a new class of unlisted B shares, at the election of the holder, with the B shares carrying rights to dividends and capital in a liquidation that are pari passu with those of the Ordinary Shares.
In parallel, the Company will have the right, at its sole discretion, to redeem the Preference Shares at nominal value in part or whole, at any time starting from1 April 2030, 6 years prior to the conversion rights awarded to the Preference Shareholders becoming exercisable.
The entitlements of the Preference Shares to Ordinary Shares and / or B shares upon conversion will be calculated by reference to the net asset value ("NAV") of the Ordinary Shares and the issue price of the Preference Shares respectively as at the date of conversion.
While the Company will initially raise GBP100,000,000 from the Subscription, it is seeking authority to issue up to 200,000,000 Preference Shares in total.
Background
The Company has identified an opportunity to optimise its capital structure by raising funding on attractive terms in the form of the Preference Shares.
Currently the total debt outstanding is GBP365m representing 38% of the Company's gross asset value. Of this total debt, GBP122m is long-term, fully amortising project financing that can be optimised through refinancing and GBP40m is a short-term credit facility to be reimbursed by 2020. The remainder is long-term fully-amortising debt financing already optimised and not available for refinancing.
The proceeds of the Subscription will be used to repay a portion of the existing long-term project financing facilities associated with its portfolio investments. The Preference Shares represent a cheaper source of funds in terms of lower yearly cash cost compared to alternative financing sources, ranging from long-term debt financing to issuance of new Ordinary Shares. This reduced cost is achieved mainly in exchange for priority of dividend payments over the Ordinary Shares.
The Subscription proceeds will be used to repay existing debt facilities and, in so doing, holders of Ordinary Shares (the "Ordinary Shareholders") and the Company will benefit from a lower service cost than could be obtained for borrowing facilities traditionally available for financing solar photovoltaic ("PV") assets (where the yearly debt service cost includes both interest and principal repayment components, and there is also the refinancing at maturity of any non-amortised debt amounts).
The lower yearly service cost of the Preference Shares will increase the free cash flow to the Company, allowing the Company to use the additional cash for general corporate purposes, including all matters permitted by the Company's investment policy (the "Investment Policy") from time to time, including but not limited to investment in new assets or extension/optimisation of current portfolio assets owned by the Company or any of its subsidiaries, and payment of dividends by the Company in accordance with its latest published dividend policy. Comparing the fixed dividend entitlement of the Preference Shares to the return expected on the Company's portfolio, the additional free cash flow is expected to increase the dividend cover available to the Ordinary Shareholders and have a positive effect on NAV over time.
Further Preference Shares may be issued under the authority conferred by the resolutions to be proposed at the upcoming extraordinary general meeting ("EGM") (the "Resolutions") (which expires at the next annual general meeting ("AGM") (or 15 months after the passing of the Resolutions, and which the Company intends to renew at the next AGM).
Alternative funding sources
The application of the proceeds of the Preference Shares issued pursuant to the Proposals to the financing of a typical UK solar PV investment of the Company is expected to enhance the average dividend cover for Ordinary Shareholders by 0.12x and increase levered internal rate of return ("IRR") by 0.75%. For comparison, an issuance of long-term debt financing at current best market terms would have an impact on the dividend cover and IRR of 0.03x and 0.64% respectively.
In net present value terms, the proposed Subscription would generate cash savings of GBP34m compared to issuing Ordinary Shares as a result of the lower total dividend cost of the Preference Shares over the period to 31 March 2036 (under current 2.75% long term retail price index ("RPI") estimates and using the Company's unlevered discount rate of 6.75%). When compared to the total debt service (principal and interest) of an illustrative debt financing at best market terms, the lower fully-costed cost of capital of the Preference Shares represents cash savings of GBP17.9m in net present value for the Subscription.
In addition, issue costs associated with this transaction as a percentage of the amount raised are significantly lower compared to alternative sources as per the estimate below:
-- c.1.7% for an issue of new Ordinary Shares. -- c.1.3% for long-term debt. -- c.0.6% for the issue of the Preference Shares as per the Subscription.
The Preference Shares carry a fixed dividend and capital entitlement to 31 March 2036 and, from 1 April 2036, the Preference Shareholders will also have rights to convert all or some of their Preference Shares into either Ordinary Shares or B shares, at the election of the holder, with the non-voting B shares carrying rights to dividends and capital in a liquidation that are pari passu with those of the Ordinary Shares. The entitlement of the Preference Shares to Ordinary Shares or B shares (as the case may be) will be proportionate to the amount of Preference Shares outstanding at the date of conversion valued at their initial subscription price of 100 pence per Preference Share plus accrued but unpaid dividends (if any, at that time), as compared to the net asset value per Ordinary Share of the Company (by reference to the Preference Shares and the Ordinary Shares together (plus B shares if any are in issue)).
The Preference Shares and any B shares arising from the conversion of Preference Shares will be accounted for as equity by the Company. As such, under the terms of the investment management agreement and the administration agreement, the assets attributable to them will be subject to the ad valorem fees of NextEnergy Capital IM Limited (the "Investment Manager") and the administrator at the applicable rates. The marginal rate for the fees of the Investment Manager is 0.8% per annum.
The Subscription
The Investor has, pursuant to the subscription agreement dated 15 October 2018 between the Investor and the Company (the "Subscription Agreement"), agreed conditionally to subscribe for 100,000,000 new Preference Shares at an issue price of GBP1.00 per Preference Share to raise gross proceeds of GBP100 million (net proceeds GBP99.4 million). The closing of the Subscription Agreement is conditional only upon the passing of the Resolutions, following which the Preference Shares will be issued to the Investor. The net proceeds can be used for general corporate purposes, including all matters permitted by the Company's Investment Policy from time to time including investment in new assets or extension/optimisation of current portfolio assets owned by the Company or any of its subsidiaries, and payment of dividend by the Company in accordance with its latest published dividend policy. The proceeds of the initial GBP100m Subscription will be immediately used to repay existing long-term project financing facilities associated with portfolios recently acquired by the Company.
Benefits of the Proposals
The Company's board of directors (the "Board") believes that the issue of Preference Shares and the associated change in the Investment Policy are in the best interests of the Company's shareholders for the following reasons:
-- The issuance of Preference Shares allows the Company to optimise its capital structure and increase the dividend cover and equity returns for its Ordinary Shareholders.
-- Preference Shares are an efficient source of funding compared to debt and equity alternatives available to the Company. The Subscription of GBP100m will allow refinancing of a portion of the Company's borrowings at terms beneficial to Ordinary Shareholders and the Company in terms of lower cash service cost than could be obtained for borrowing facilities traditionally available for financing solar PV assets (where the service cost includes an interest component and repayment of capital).
-- Subsequent issues of up to 100,000,000 preference shares may take place (assuming the resolutions are passed) and these may repay further debt facilities or finance new investments consistent with the Company's Investment Policy, thus optimising further the Company's capital structure to the benefit of Ordinary Shareholders. The Company intends to issue the balance of the Preference Shares within 12 months of the Subscription and expects to carry out a further issue before the end of the calendar year.
-- The application of proceeds of Preference Shares issued pursuant to the Proposals to the financing of a typical UK solar PV investment of the Company is expected to enhance the average dividend cover for Ordinary Shareholders by 0.12x and increase levered IRR by 0.75%. For comparison, an issuance of long-term debt financing at current best market terms would have an impact of 0.03x and 0.64% respectively and imply significant restrictive debt covenants.
-- The option to redeem Preference Shares at the sole discretion of the Company is valuable for Ordinary Shareholders: should more competitive sources of capital become available, the Company may issue new capital (debt or equity) to fund the redemption. The Preference Shares are only redeemable by the Preference Shareholders in limited circumstances, i.e. in the event of a delisting or change of control of the Company, and otherwise only at the option of the Company at any point after 1 April 2030.
-- The proceeds of the Subscription will be promptly applied to repay existing long-term project financing facilities, thereby generating cash savings starting in the current financial year. Should the Company repay GBP162m of debt financing through issuance of Preference Shares, the total debt outstanding would reduce from 38% to 21% of Gross Asset Value.
-- In net present value terms, the proposed Subscription of GBP100m of Preference Shares would generate cash savings of GBP34.0m compared to issuing Ordinary Shares and lower total dividend cost of the Preference Shares over the period to 31 March 2036 (under current 2.75% long term RPI estimates and using the Company's unlevered discount rate of 6.75%).
Consequential changes to the Investment Policy
The Company's existing Investment Policy includes limitations on the use of leverage. In recognition of the priority of payment (in relation to dividends and assets in a liquidation) given to the holders of Preference Shares, it is proposed to amend the Investment Policy in order to include Preference Shares in the calculation of the 50% leverage limit over the Company's gross asset value.
Amendments to the articles of incorporation
In addition to the insertion of the rights attaching to the Preference Shares and B shares into the articles of incorporation of the Company (the "Articles"), including a new Article 53 which sets out the rights attaching to the Preference Shares and a new Article 56 which sets out the rights attaching to the B shares, the Company wishes to make some further amendments which are intended to address recent changes to the Companies (Guernsey) Law 2008 (as amended) and regulation in order to ensure the Articles are current and compliant.
Article Change Rationale Article 2 New defined term Required in relation "B Shares" to the Preference Shareholders' rights of conversion. ------------------------------ -------------------------- New defined term Required for new "Change of Control" Article 53.6 ------------------------------ -------------------------- Amended defined term Required to clarify "Conversion Ratio" that the relevant ratio is of a comparison between C Shares and Ordinary Shares ------------------------------ -------------------------- New defined term Required for new "Delisting" Article 53.6 ------------------------------ -------------------------- Amended defined term Amended to refer "Disclosure and Transparency to the Disclosure Rules" Guidance rather than Disclosure Rules ------------------------------ -------------------------- New defined term As discussed in this "Investment Policy" document ------------------------------ -------------------------- New defined term As discussed in this "Preference Shares" document ------------------------------ -------------------------- New defined term As discussed in this "Purchase Price" document ------------------------------ -------------------------- Amended defined term Required to include "Share" Preference Shares and B Shares ------------------------------ -------------------------- New defined term Required for amended "Working Day" Article 48.2. ------------------------------ -------------------------- Article 5.3 Deletion of provisions Sections 292 and relating to Sections 293 of the Companies 292 and 293 of the Law have been repealed Companies Law which in September 2015. relate to the authority of the Board to issue shares. ------------------------------ -------------------------- Articles 33.3, 36.7 Amended to clarify Required for practical and 36.8 that the directors reasons and to reflect can participate provided current guidance they are not in the and practice. UK, regardless of their place of residence. ------------------------------ -------------------------- Article 34.1(A) Deletion of Article The deletion reflects 34.1(A) which relates an amendment to section to the disclosure 162 of the Companies of a director's interests Law in September in a transaction. 2015. ------------------------------ -------------------------- Article 48.2 Amendment of statutory The amendment reflects notice periods for a change to section documents to be given 523 the Companies or served under the Law in September Companies Law. 2015. ------------------------------ -------------------------- Article 53 Rights of the Preference As discussed in this Shares document ------------------------------ -------------------------- Article 56 Rights of the B Shares Required in relation to the Preference Shareholders' rights of conversion. ------------------------------ --------------------------
A copy of the new Articles showing the proposed changes to the Company's current Articles is available for inspection at the offices of NextEnergy Capital Limited at Heathcoat House, 20 Savile Row, Mayfair, London, W1S 3PR and at the registered office of the Company.
Risk factors
Shareholders should have regard to and carefully consider the risk factors described below in addition to the other information set out in this announcement. The following are those risk factors which the Board considers to be material as at the date of this announcement. If any of the adverse events described below actually occur, the Company's business, financial condition, results or prospects could be materially and adversely affected. Additional risks and uncertainties which were not known to the Board at the date of this announcement or that the Board considers at the date of this announcement to be immaterial may also materially and adversely affect the Company's business, financial condition, results or prospects.
-- Impact of Preference Share dividend
The fixed cumulative dividend on the Preference Shares is at a lower rate than the target dividend yield on the Ordinary Shares and is not linked to growth in UK inflation. The issue of the Preference Shares therefore provides an opportunity for the Company to raise additional capital on more favourable terms than a further Ordinary Share issue, and in a manner which does not adversely affect the returns to Ordinary Shareholders. However, there can be no assurance that the Company will be able to continue to meet its Ordinary Share dividend targets. In the event that the Company does not receive sufficient income to fund the Preference Share dividends and the target Ordinary Share dividends in full, then the Preference Share dividends will be paid in priority to the Ordinary Share dividends and returns to Ordinary Shareholders may be reduced. To the extent Preference Share dividends remain unpaid or undeclared, this will increase the proportional entitlement of the holders of the Preference Shares to Ordinary Shares / B shares upon conversion on or after 1 April 2036 and may therefore reduce the proportional holdings on the Ordinary Shares.
-- Risks relating to liquidation
In the event of a future liquidation of the Company, the holders of the Preference Shares will be entitled to receive the amount subscribed for the Preference Shares plus any unpaid or undeclared Preference Share dividends in priority to the Ordinary Shareholders. The amounts which Ordinary Shareholders will receive on a liquidation may therefore be reduced by the amounts paid to Preference Shareholders.
-- Redemption of the Preference Shares
On or after 1 April 2030, the Company may elect (at the sole discretion of the Directors) to redeem all or some of the Preference Shares. Such redemption would reduce proportionately the future entitlement of the Preference Shareholders to future dividends and distributions; also the funds applied to such redemption would not be available for making investments or for the Company's general purposes and this could reduce the returns to Ordinary Shareholders or impact the Company's ability to repurchase the Company's Ordinary Shares in order to manage discounts to the Company's net asset value.
-- Leverage
Under the International Financial Reporting Standards, the Preference Shares will be accounted for as equity but the Board is of the view that, given the priority of payment of dividends (and assets in a liquidation) granted to its holders, the Ordinary Shareholders should be protected by amending the current Investment Policy to ensure the maximum leverage of 50% of the Company's gross asset value (as it was set at the time of the Company's admission to the Official List of the FCA) is intended as total debt plus Preference Shares, divided by the Company's gross asset value. There is a risk that this may reduce the Company's ability to borrow even where borrowing is at a lower cost of capital than the issue of Preference Shares (but note the Company's redemption rights after 1 April 2030). In addition, the Company has covenanted in the Subscription Agreement not to exceed a maximum adjusted gearing ratio of 50% of GAV in the context of new borrowings, new issues of Preference Shares and redemption or repurchases of the Ordinary Shares. These limits may impact on the Company's ability to repurchase Ordinary Shares or obtain any new borrowings.
-- Management fee
The Investment Manager is entitled to receive an annual fee which is payable monthly in advance, accruing daily on the basis of the prevailing NAV and calculated on a sliding scale, as follows below:
-- for the tranche of NAV up to and including GBP200 million, 1% of NAV.
-- for the tranche of NAV above GBP200 million and up to and including GBP300 million, 0.9% of NAV.
-- for the tranche of NAV above GBP300 million, 0.8% of NAV.
The Preference Shares are an equity instrument and therefore the assets attributable to Preference Shareholders will form part of the NAV, including for the purpose of calculating the management fee. Based on the current NAV, the Preference Shares will therefore attract a marginal fee rate of 0.8% of the assets attributable to them.
-- NMPI status
At present in the UK, the Company is not a "non-mainstream pooled investment" as a consequence of being a company which, if it were incorporated in the UK, would qualify as an investment trust. The issue of the Preference Shares will not result in the loss of this status, but if any Preference Shares are converted into B Shares on or after 1 April 2036, and there is no change to the existing UK regime relating to "non-mainstream pooled investments", then the Company may at that point in future lose this status.
Extraordinary general meeting
The EGM will be held at 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1 2HL, on 8 November 2018 commencing at 4:00 p.m.
Analyst meeting
NESF's Investment Adviser will host a conference call for analysts at 09:00 hours (UK time) today. If you would like to attend or have any further questions, please contact MHP Communications on 020 3128 8778 or nextenergy@mhpc.com.
Enquiries
NextEnergy Capital Michael Bonte-Friedheim T: +44 (0) 20 Limited / Aldo Beolchini 3746 0700 Cantor Fitzgerald Robert Peel T: +44 (0) 20 Europe 7894 8016 Fidante Capital John Armstrong-Denby T: +44 (0) 20 7832 0983 Shore Capital Anita Ghanekar T: +44 (0) 20 7408 4090 Macquarie Capital Nick Stamp T: +44 (0) 20 (Europe) Limited 3037 2000 Ipes (Guernsey) Limited Nick Robilliard T: +44 (0) 1481 713 843
Important information
The information contained in this announcement does not constitute an offer of securities for sale in any jurisdiction.
Notes to Editors:
NESF is a specialist investment company that invests primarily in operating solar power plants in the UK. It has the authority to invest up to 15% of its Gross Asset Value in operating solar power plants in OECD countries outside the UK. The Company's objective is to secure attractive shareholder returns through RPI-linked dividends and long-term capital growth. The Company achieves this by acquiring solar power plants on agricultural, industrial and commercial sites.
NESF has raised equity proceeds of GBP592m since its initial public offering on the main market of the London Stock Exchange in April 2014. It also has credit facilities outstanding of c.GBP365m in place (GBP149m from a syndicate including MIDIS, NAB and CBA; MIDIS: GBP54m; ING GBP32m; UniCredit GBP32m; Santander GBP40m; and Bayerische Landesbank GBP58m).
NESF is differentiated by its access to NextEnergy Capital Group (NEC Group), its Investment Manager, which has a strong track record in sourcing, acquiring and managing operating solar assets. WiseEnergy is NEC Group's specialist operating asset management division and over the course of its activities has provided operating asset management, monitoring, technical due diligence and other services to over 1,300 utility-scale solar power plants with an installed capacity in excess of 1.9 GW.
Further information on NESF, NEC Group and WiseEnergy is available at www.nextenergysolarfund.com, www.nextenergycapital.com and www.wise-energy.eu.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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