TIDMNESF
RNS Number : 1150E
NextEnergy Solar Fund Limited
16 October 2018
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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.
END
IOEBIBDGXGBBGIU
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