Foresight Solar VCT PLC : Trading & Net Asset V...

3 May 2013

Foresight Solar VCT plc - Trading & Net Asset Value Update

UK Solar Assets Re-financing

The Board and Foresight Group, as the manager of Foresight Solar VCT plc and Foresight Solar EIS, announces an innovative £60 million bond refinancing of four solar plants which is expected to improve significantly the total returns to investors in both Foresight Solar VCT plc and Foresight Solar EIS

Introduction

Foresight Solar VCT and Foresight Solar EIS Fund own four ground based solar power plants near Bridgwater and Puriton in Somerset, Aylesford in Kent and Malmesbury in Wilts.  These plants, which are the principal assets of the funds are all trading successfully, and benefit from index linked Feed-in Tariffs (FiTs) over 25 years. The plants are expected to generate steady income and dividends throughout that period at relatively low risk.  The purchase of these plants totalling £50 million was initially funded entirely by equity from Foresight Solar VCT and Foresight Solar EIS Fund with no recourse to any debt finance.

With these currently unencumbered plants generating a predictable, low risk, index linked and regular cash flow, Foresight recognised that lenders would consider these plants to be highly attractive assets and has been actively considering how to utilise cheaper long term debt to enhance investor returns (both in terms of higher dividends and greater capital appreciation).  Having considered various types of debt, including traditional bank loans and project finance, Foresight has developed an innovative solution by raising £60 million of cheaper, long term debt by issuing a listed, index linked bond secured solely against the four solar power plants.  These proceeds will in turn be invested shortly in other UK ground based solar power plants benefiting from the UK Government's ROC subsidy scheme.  Because of the favourable differential between the yield on these new ROC based plants and the cost of the bond, investors in Foresight Solar VCT and Foresight Solar EIS Fund are expected to benefit from higher dividends and greater capital appreciation as a result of this innovative refinancing, increasing the target return from 130p per share towards 150p per share in 2016.  Through the issue of this bond, over £1.00 of refinancing proceeds has been raised for each £1.00 invested in the plants by Foresight Solar VCT and Foresight Solar EIS Fund which still own the entire remaining equity interests in the four plants.

On 2^nd May, two institutional investors, a British pension fund and an insurance company, invested a total of £60 million gross in this index linked listed bond which is the largest such bond issued to date in the UK.

Foresight believes that this bond structure offers the best opportunity to investors in Foresight Solar VCT and Foresight Solar EIS Fund to maximise refinancing proceeds for re-investment in new solar ROC projects and optimise returns when compared with other alternative refinancing structures, such as traditional bank loans and project or asset finance facilities.

Reinvestment of Bond Proceeds

Foresight has an extensive pipeline of UK solar ROC opportunities totalling over 600 MWs in which to invest (more than £600 million), over part of which Foresight already enjoys exclusivity.  It is expected that all of these net proceeds will be invested in operating plants within the next six months with a view to benefiting from the favourable 1.6 ROC/MWh subsidy rate.

Foresight is presently raising further funds to invest in such plants through a £20 million "C" share issue by Foresight Solar VCT and a further £28 million (to date) through  Foresight Solar EIS 2 Fund.  Foresight ITS Fund (Inheritance Tax Solution Fund) and the Infrastructure share classes of Foresight VCT and Foresight 2 VCT have investment mandates that also include the potential to invest in UK solar assets.

Bond Structure and Parameters

The bond capital which is indexed linked will be repaid over 21 years in instalments twice yearly.  Annual interest will be charged at a fixed rate of 2.60% on such index linked principal which compares with much higher rates and shorter average lives for conventional bank loans.  As revenues are also largely RPI linked, annual revenue inflation is expected to keep pace with annual inflation on the remaining principal such that a high inflation rate should not cause a bond default.  Indeed, residual equity returns are also expected to keep pace with inflation.

Interest rates on comparable government bonds are at or near long term lows and this is one of the main reasons, along with the long 21 year tenor, that such a bond is the most efficient refinancing structure currently available.

The bond is secured only on the four UK solar assets and reinvestment of the refinancing proceeds into new ROC projects falls outside the scope of such security.  The bond has been carefully structured to maintain VCT and EIS qualifications and is not expected to restrict the sale of the equity in the four UK solar assets in future.

Increasing Capital Value and Dividends

After the bond issue, the residual net present value of the equity in the four UK solar assets is estimated to be worth approximately 30p per share.  Together with the net bond proceeds, this more than achieves the £1.30 per share target return on the UK solar assets originally targeted.

By investing the proceeds in new ROC solar plants, investor returns are expected to be enhanced, facilitating the payment of dividends increasing from the current annual level of 5p per share while also creating more scale which will be valuable in maximising ultimate sale proceeds.  Once fully operational, the new solar ROC plants are expected to deliver a net 5p annual dividend to investors.  Combined with the annual residual equity distributions from the four UK solar assets, this is expected to result in progressive, growing dividends for VCT and EIS investors from 2014 onwards.  Initial expectations are for dividends to increase to 6p per share in 2013/14 and to 7p per share by 2016/17.

Each £1 invested in new solar ROC plants is expected to generate a total return of £1.20.  By adding this to the estimated residual net present value of the four UK solar assets, the bond refinancing and reinvestment strategy could improve total returns for investors from £1.30 towards £1.50 per share.

For further information please contact:
Gary Fraser, Foresight Group:                               01732 471 800

---

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Foresight Solar VCT PLC via Thomson Reuters ONE

HUG#1698799