Proposed Placing

RNS Number : 8534B

SDCL Energy Efficiency Income Tst

13 October 2020

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, TO US PERSONS OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND OR THE REPUBLIC OF SOUTH AFRICA OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OR BREACH OF ANY APPLICABLE LAW. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT HAS BEEN DETERMINED TO CONTAIN INSIDE INFORMATION.

13 October 2020

SDCL Energy Efficiency Income Trust plc  

(the "Company")  

Proposed Placing

The Board of Directors (the "Board") of SDCL Energy Efficiency Income Trust plc announce a proposed Placing to raise approximately £ 80 million through an issue of new Ordinary Shares in the capital of the Company ("New Ordinary Shares") at a price of 105.0   pence per Ordinary Share (the "Placing").

Highlights:

· Placing of approximately 76.2 million New Ordinary Shares at 105.0 pence per New Ordinary Share (the "Placing Price") by way of a Placing pursuant to the Company's existing Share Issuance Programme;

· The Placing Price of 105.0 pence represents a 4.0 per cent premium to the Company's 31 March 2020 Net Asset Value per Ordinary Share and a discount of 5.4 per cent to the Company's closing share price of 111.0 pence per Ordinary Share on 12 October 2020 (being the last business day prior to this Announcement);

· The Company's portfolio continues to perform as expected, with no material operational matters to report since 31 March 2020. As a result, the Board and Sustainable Development Capital LLP (the "Investment Manager") expect asset valuations as at 30 September 2020 to be similar to those as at 31 March 2020;

· The Company and the Investment Manager are currently progressing the following opportunities:

o  investments under exclusivity with an aggregate equity value of over £100 million, including an established operational European regulated energy network in a major Western European city, and a pipeline of follow-on investments from the Company's existing portfolio;

o  investments at advanced stages of due diligence, or in bilateral negotiation , with an aggregate equity value of over £150 million, including a portfolio of commercial and industrial on-site solar projects in the USA and further investment in combined heat and power projects for commercial, industrial and public sector buildings in the UK; and

o  a   further wider pipeline of investments under active due diligence that meet the Company's Investment Policy.

· The Company has a dividend target of 5.5 pence per Ordinary Share for the financial year to 31 March 2021, which represents a dividend yield of 5.2 per cent at the Placing Price.

· Investors in the Placing will be entitled to receive the next quarterly dividend declared by the Company for the three-month period to 30 September 2020, which is expected to be declared in November 2020.

The Placing is being conducted under the Company's existing Share Issuance Programme in accordance with the Prospectus dated 19 June 2020.

Tony Roper, Chairman of SDCL Energy Efficiency Income Trust plc said:

"This proposed capital raise builds on the strong momentum SEEIT has achieved over the last two years. Energy efficiency is critically important in global efforts to address the climate emergency and has become an increasing focus for investors. The proceeds of this placing will allow SEEIT to continue to invest in this important and growing market whilst also delivering additional scale and diversification to shareholders."

Jonathan Maxwell, CEO of Sustainable Development Capital LLP, commented:

" The capital raised from this additional placing will be deployed to fund further investments and new acquisitions as we continue to grow SEEIT's portfolio and deliver cheaper, cleaner and more reliable energy solutions. We currently have a wide pipeline of investment opportunities, several of which are either under exclusivity or at an advanced stage of negotiation and due diligence, that will diversify SEEIT's portfolio in terms of technology, geography and counterparty and continue to deliver returns to shareholders in line with the Company's objectives. "

Background to the Issue 

SDCL Energy Efficiency Income Trust plc is the first UK listed company of its kind to invest exclusively in the energy efficiency sector.

As at 31 March 2020, the Company had a portfolio of 26 assets, valued at £320 million, with the portfolio diversified across technology, geography and credit counterparty (the "Portfolio"). Since 31 March 2020, and subsequent to the Company's £110 million capital raise in June 2020, the Company has acquired, or committed to acquiring, a UK portfolio of ultra-fast EV charging stations, a portfolio of CHP assets installed at various UK hotels and six energy efficiency assets in Singapore. The value of these investments and commitments represents approximately £57 million.

The Company is targeting a total return for shareholders of 7-8 per cent. per annum by reference to the IPO Share Price of £1.00 per Ordinary Share, with a dividend target of 5.5 pence per Ordinary Share in respect of the financial year to 31 March 2021.

Trading Update

The Company reported a Net Asset Value per Ordinary Share of 101 pence as at 31 March 2020. The Company's portfolio continues to perform as expected, with no material operational matters to report since 31 March 2020 . The Investment Manager continues to monitor any impact resulting from the COVID-19 pandemic and government restrictions on a project-by-project basis. The Board and the Investment Manager expect the capital value of the Company's portfolio to have remained stable, notwithstanding the downturn in global markets resulting from the COVID-19 pandemic.

Cash inflow from investments since 31 March 2020 has been as expected and continues to comfortably support the Company's dividend target of 5.5 pence per Ordinary Share for the year ending 31 March 2021, as well as providing funds for re-investment into the portfolio and the pipeline. The Company's hedging policies have also been effective in limiting the impact of foreign exchange movements on the Company's short-term income over the Company's last annual accounting period. The Board and the Investment Manager remain confident in the projected future portfolio cashflows and will provide a further, comprehensive update in the Company's half year results to 30 September 2020, which are expected to be published in December 2020.

As at 30 September 2020, all of the Company's projects benefited from contracted revenues with over 75% (by pro-forma value¹) of the Company's investments being in projects associated with investment grade or equivalent client counterparties². In addition to this, the Company has significant income security, with approximately 80% of the Company's projects (by pro-forma value¹) benefitting from contracted revenues with limited exposure to demand risk, which include availability-based revenues, revenues that are pre-determined and revenues that are regulated. The remaining projects in the portfolio benefit from capacity-based revenues. These characteristics help to significantly limit risks associated with volatility in demand and/or market prices. The estimated weighted average term of project investments is approximately 11 years.

The Company currently has a conservative level of gearing. The Company takes into account borrowings at the portfolio level, together with borrowings at the Company level, when calculating its gearing limits. As at 30 September 2020, the borrowings on a consolidated basis were approximately £80 million which is well within the Company's gearing limit. In July 2020 the Company increased its Revolving Credit Facility ("RCF") with Investec Bank plc from £25 million to £40 million on existing terms. The RCF expires in June 2022 and includes an accordion function for a further £25 million increase on an uncommitted basis. As at 12 October 2020, the RCF is undrawn. However, the Company has initiated a process to further increase the RCF to assist in financing upcoming investments.

As detailed in the 31 March 2020 Annual Report, one of the steel production facilities served by the Primary Energy portfolio, Blast Furnace 4, was temporally idled in March because of the slowdown in demand brought about by the COVID-19 pandemic. The facility was brought back online in August and during the period in which the blast furnace was idled, re-contracting negotiations for the project were concluded, extending the contract for a further 10 years. The successful re-contracting validates the view of the Company that the risks associated with re-contracting for Primary Energy's projects are mitigated by the fact that the projects provide essential cost effective services to their client's operations, including critical energy supply and environmental benefits.

The Company has four projects that are in construction, drawn down capital for which currently accounts for approximately 5% of the portfolio (by pro-forma value¹). The Company previously reported that the commissioning of the Huntsman Energy Centre project was delayed due to temporary demobilisation at the construction site during the COVID-19 lock-down. Commissioning has now restarted and the project is now expected to be operational before the end of the Company's financial year. Work on the installation of rooftop solar projects across Tesco's estate in the Supermarket Solar UK project was also temporarily paused during lock-down but has now restarted with seven of the initial batch of installations now operational and income generative. The Company has also started drawing down capital on its commitments to its recent investment, GET Solutions and is planning the first series of investments for Electric Vehicle Charging.

On 1 October, the Company published its first ESG Report for the year ended 31 March 2020. SEEIT is dedicated to accelerating the global transition to a low carbon economy and over the reporting period delivered energy solutions that saved 156,000 tonnes of CO² emissions and produced 113,000 MWh of renewable energy, as well as saving another 44,500 MWh via demand side energy efficiency measures. In total, SEEIT's portfolio projects provided 3.6 million 'negawatts' of demand side energy reduction capacity and supported nearly 1,300 jobs in this crucial sector of the economy.

Use of Proceeds

The Company has entered into exclusivity agreements to acquire projects with an aggregate equity value in excess of £100 million. It is also in advanced stages of due diligence, or is negotiating bilaterally, projects with an aggregate equity value of over £150 million and is evaluating a further pipeline of opportunities.

The Company has entered into an exclusivity agreement to acquire an established, operational and regulated energy network in a major Western European city for over £100 million (the "Target Asset"). The Target Asset is an essential infrastructure service to the city, benefitting from limited direct competition and providing locally sourced cleaner energy to thousands of individual customers across the residential, business and transportation sectors. The system of which the network is an essential component, delivers substantial environmental and energy efficiency benefits, helping to prevent pollution and reduce and reuse waste at the point of production. It also serves to displace higher carbon fuels, cost effectively, at the point of use. As such the overall system plays a key and growing role in the national and regional strategies to attain carbon neutrality. The revenues, which are regulated, are predominantly based on fixed tariffs with relatively low sensitivity to consumption or demand. There is an opportunity to continue to grow both the customer base and the supply of clean energy and hence revenues, over the medium to long term. The acquisition remains subject to confirmatory due diligence and documentation, with the Company expecting to complete this acquisition in the coming weeks.

In addition to the Target Asset, the Investment Manager has a substantial pipeline of follow-on opportunities that support existing projects and provide further capital for projects developed by the Company's existing delivery partners.  

The Company is also in advanced stages of due diligence or is negotiating bilaterally on a number of investments, including a portfolio of commercial and industrial on-site solar projects in the USA and high efficiency combined heat and power projects for commercial, industrial and public sector buildings in the UK.

The Investment Manager has also identified and is in active due diligence on a wider pipeline of investments that meet the Company's Investment Policy. The wider pipeline covers a range of investments by technology and application, including efficient supply of energy using combined heat and power, fueled by green gas or hydrogen, solar and storage, microgrids, district energy, heat networks and renewable heat. Investments that focus on reducing or displacing demand for energy include buildings efficiency, cooling, electric vehicle infrastructure and opportunities in energy efficiency for wastewater. The Investment Manager intends to continue to construct a portfolio balanced by geography, taking advantage of available opportunities, in particular and from time to time, in the UK, Europe and North America. Furthermore, the Investment Manager will seek to take advantage of policy tailwinds/headwinds, competition, scale, procurement timeframes and the opportunity for innovation. The Investment Manager seeks to leverage its long-standing industry relationships and industrial knowledge to create projects and to secure bilateral opportunities that can generate value and meet or exceed the Company's investment targets and objectives.

The Company does not intend to acquire all of the assets in its wider pipeline and in some cases may enter into partnership agreements to acquire stakes of less than 100% in the respective asset. However, the size of the pipeline allows the Company to exercise pricing discipline when negotiating with vendors. It also provides additional asset optionality, without materially compromising on the pace of investment, if acceptable terms cannot be reached with its preferred vendors.

No contractually binding terms have been entered into by the Investment Manager or the Company on any of the pipeline opportunities. As such there can be no guarantee that the Company will make an investment in any of these assets. However, given the size and compelling nature of the current pipeline, the Board and the Investment Manager believe that it is now an appropriate time for the Company to issue new equity in order to take advantage of these opportunities.

Benefits of the Placing

The Board believes that proceeding with the Placing will have the following benefits for the Company:

§ Allow the Company to invest further capital in the Company's identified pipeline opportunities to enable it to further diversify its existing portfolio and secure value from new investments;

§ Provide the Company with immediate capital to allow it to act quickly in securing existing investment opportunities as well as having sufficient capital to fund new opportunities;

§ Create the potential to enhance the NAV per share of the existing Ordinary Shares through the issuance of New Ordinary Shares at a premium to NAV, after the related costs have been deducted;

§ Spread the Company's fixed running costs across a wider base of shareholders, and benefit from the reducing scale of charges for the Investment Manager, thereby reducing the total expense ratio; and

§ Increase the size of the Company which should help make the Company more attractive to a wider base of investors and improve market liquidity in the Ordinary Shares.

Further details

Jefferies International Limited ("Jefferies") is acting as sole sponsor, global co-ordinator and bookrunner to the Company in connection with the Placing. Jefferies will today commence a bookbuild process in respect of the Placing at the Placing Price. The Placing will be non-pre-emptive pursuant to the terms set out in the Prospectus and is expected to close no later than 11.00 a.m. BST on 16 October but may be closed earlier or later at the absolute discretion of Jefferies and the Company.  

The Placing is conditional, inter alia, on the Ordinary Shares being admitted to listing on the premium listing segment of the Official List of the FCA, and to trading on the main market for listed securities of the London Stock Exchange (together, "Admission"). Subject to Admission becoming effective, it is expected that settlement of subscriptions by placees in respect of the Ordinary Shares and trading in the Ordinary Shares will commence at 8.00 a.m. BST on 20 October 2020, or such later time and/or date as may be announced by the Company after the close of the Placing.

The new Ordinary Shares issued pursuant to the Placing will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of issue. For the avoidance of doubt, investors who acquire Ordinary Shares in the Placing will be entitled to receive the next quarterly dividend which relates to the period 30 June to 30 September 2020 and is expected to be declared in November 2020.

The target number of Ordinary Shares to be issued pursuant to the Placing is 76,190,476 but the Board may increase the number of Ordinary Shares to be issued under the Placing if it, in consultation with Jefferies and the Investment Manager, believes there is sufficient investor demand for those shares and suitable assets available for investment in which to deploy the Placing proceeds. The Board would particularly focus on the expected outlook of any remaining negotiations between the Company and the vendor of the Target Asset when making this decision.

The Placing is not underwritten. The Placing may be scaled back by the Company for any reason, including where it is necessary to scale back allocations to ensure the Placing proceeds align with the Company's post fundraise acquisition targets. Details of the number of Ordinary Shares to be issued pursuant to the Placing will be determined by the Board (following consultation with Jefferies and the Investment Manager) and will be announced as soon as practicable after the close of the Placing.

The Placing Price is 105.0 pence per New Ordinary Share. The Placing Price has been set by the Board following their assessment of market conditions.

By choosing to participate in the Placing and by making an oral and legally binding offer to subscribe for Ordinary Shares, investors will be deemed to have read and understood this Announcement and the Prospectus in their entirety and to be making such offer on the terms and subject to the conditions in the Prospectus, and to be providing the representations, warranties and acknowledgements contained therein.

A copy of the Prospectus is available on National Storage Mechanism at: www.morningstar.co.uk/uk/nsm as well as on the Company's website at www.sdcleeit.com. Full details of the Terms and Conditions of the Placing are available in the Prospectus.

Expected Timetable

Placing opens		13 October 2020
Latest time and date for applications under the Placing		11.00 a.m. BST on 16 October 2020
Results of the Placing announced		16 October 2020
Admission of the Ordinary Shares to the Official List and commencement of dealings on the London Stock Exchange's main market for listed securities		8.00 a.m. BST on 20 October 2020

The dates and times specified above are subject to change. In particular, the Directors may (with the prior approval of Jefferies) bring forward or postpone the closing time and date for the Placing. In the event that a date or time is changed, the Company will notify persons who have applied for Ordinary Shares by post, by electronic mail or by the publication of a notice through a Regulatory Information Service.

References to all times are to London times unless otherwise stated.

Dealing codes

Ticker	SEIT
ISIN for the Ordinary Shares	GB00BGHVZM47
SEDOL for the Ordinary Shares	BGHVZM4
Legal Entity Identifier (LEI)	213800ZPSC7XUVD3NL94

Unless otherwise defined, capitalised terms used in this announcement shall have the same meaning as set out in the Prospectus published on 19 June 2020.

For Further Information

Sustainable Development Capital LLP Jonathan Maxwell Purvi Sapre Keith Driver	T: [phone]
Jefferies International Limited Tom Yeadon Gaudi Le Roux Neil Winward	T: [phone]
TB Cardew Ed Orlebar Joe McGregor	T: [phone] M: [phone] E: [e-mail]

¹ Pro-forma value (sometimes expressed as being as at 30 September 2020) has been calculated as asset values as at 31 March 2020, adjusted for assets acquired by the Company between 1 April 2020 and 30 September 2020 (valued at acquisition cost).

² A sale of substantially all of the operations of ArcelorMittal USA to Cleveland Cliffs (NYSE: CLF) was announced on 28 September 2020, subject to regulatory approval and other customary conditions. Completion of the acquisition will make Cleveland Cliffs the largest flat rolled steel producer in North America. ArcelorMittal will continue to hold a meaningful stake via its interest in Cleveland Cliffs. Although Cleveland Cliffs is not itself investment grade, the efficiencies involved with vertically integrating iron ore supply with steel production present opportunities to significantly increase the cost competitiveness and therefore profitability and output at the steel mills to which the Company's investment portfolio relates.

Important Information

This announcement is not an offer to sell or a solicitation of any offer to buy the Shares in the Company in the United States, Australia, Canada, New Zealand or the Republic of South Africa, Japan, or in any other jurisdiction where such offer or sale would be unlawful.

This communication is not for publication or distribution, directly or indirectly, in or into the United States of America. This communication is not an offer of securities for sale into the United States. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States, except pursuant to an applicable exemption from registration. No public offering of securities is being made in the United States.

The Company has not been and will not be registered under the US Investment Company Act of 1940 (the "Investment Company Act") and, as such, holders of the Shares will not be entitled to the benefits of the Investment Company Act.  No offer, sale, resale, pledge, delivery, distribution or transfer of the Shares may be made except under circumstances that will not result in the Company being required to register as an investment company under the Investment Company Act. 

This communication is only addressed to, and directed at, persons in member states of the European Economic Area (other than the United Kingdom) who are "qualified investors" within the meaning of Article 2(e) of the Prospectus Regulation ("Qualified Investors").  For the purposes of this provision, the expression "Prospectus Regulation" means Regulation (EU) 2017/1129. In addition, in the United Kingdom, this communication is being distributed only to, and is directed only at, Qualified Investors: (i) who have professional experience in matters relating to investments who fall within the definition of "investment professional" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"), or (ii) who are high net worth companies, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Order, and (iii) other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as "relevant persons").  Any investment or investment activity to which this communication relates is available only to and will only be engaged in with such persons. This communication must not be acted on or relied on in any member state of the European Economic Area other than the United Kingdom, by persons who are not Qualified Investors.

The merits or suitability of any securities must be independently determined by the recipient on the basis of its own investigation and evaluation of the proposed investment trust. Any such determination should involve, among other things, an assessment of the legal, tax, accounting, regulatory, financial, credit and other related aspects of the securities.

This announcement may not be used in making any investment decision.  This announcement does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any investment.  This announcement does not constitute and may not be construed as an offer to sell, or an invitation to purchase or otherwise acquire, investments of any description, nor as a recommendation regarding the possible offering or the provision of investment advice by any party. No information in this announcement should be construed as providing financial, investment or other professional advice and each prospective investor should consult its own legal, business, tax and other advisers in evaluating the investment opportunity. No reliance may be placed for any purposes whatsoever on this announcement or its completeness.

Nothing in this announcement constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient.

The information and opinions contained in this announcement are provided as at the date of the document and are subject to change and no representation or warranty, express or implied, is or will be made in relation to the accuracy or completeness of the information contained herein and no responsibility, obligation or liability or duty (whether direct or indirect, in contract, tort or otherwise) is or will be accepted by the Company, SDCL, Jefferies or any of their affiliates or by any of their respective officers, employees or agents in relation to it. No reliance may be placed for any purpose whatsoever on the information or opinions contained in this announcement or on its completeness, accuracy or fairness. The document has not been approved by any competent regulatory or supervisory authority.

The Company has a limited trading history. Potential investors should be aware that any investment in the Company is speculative, involves a high degree of risk, and could result in the loss of all or substantially all of their investment. Results can be positively or negatively affected by market conditions beyond the control of the Company or any other person. The returns set out in this document are targets only. There is no guarantee that any returns set out in this document can be achieved or can be continued if achieved, nor that the Company will make any distributions whatsoever. There may be other additional risks, uncertainties and factors that could cause the returns generated by the Company to be materially lower than the returns set out in this announcement.

The information in this announcement may include forward-looking statements, which are based on the current expectations and projections about future events and in certain cases can be identified by the use of terms such as "may", "will", "should", "expect", "anticipate", "project", "estimate", "intend", "continue", "target", "believe" (or the negatives thereon) or other variations thereon or comparable terminology. These forward-looking statements, as well as those included in any related materials, are subject to risks, uncertainties and assumptions about the Company, including, among other things, the development of its business, trends in its operating industry, and future capital expenditures and acquisitions.  In light of these risks, uncertainties and assumptions, the events in the forward-looking statements may not occur. 

Each of the Company, SDCL, Jefferies and their affiliates and their respective officers, employees and agents expressly disclaim any and all liability which may be based on this announcement and any errors therein or omissions therefrom.

No representation or warranty is given to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any.  Any views contained herein are based on financial, economic, market and other conditions prevailing as at the date of this announcement.  The information contained in this announcement will not be updated.

This announcement does not constitute or form part of, and should not be construed as, any offer or invitation or inducement for sale, transfer or subscription of, or any solicitation of any offer or invitation to buy or subscribe for or to underwrite, any share in the Company or to engage in investment activity (as defined by the Financial Services and Markets Act 2000) in any jurisdiction nor shall it, or any part of it, or the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision whatsoever, in any jurisdiction.  This announcement does not constitute a recommendation regarding any securities.

Prospective investors should take note that the Company's Shares may not be acquired by: (i) investors using assets of: (A) an "employee benefit plan" as defined in Section 3(3) of US Employee Retirement Income Security Act of 1974, as amended ("ERISA") that is subject to Title I of ERISA; (B) a "plan" as defined in Section 4975 of the US Internal Revenue Code of 1986, as amended (the "US Tax Code"), including an individual retirement account or other arrangement that is subject to Section 4975 of the US Tax Code; or (C) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Tax Code; or (ii) a governmental, church, non-US or other employee benefit plan that is subject to any federal, state, local or non-US law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Tax Code.

Jefferies is authorised and regulated in the United Kingdom by the Financial Conduct Authority. Jefferies is acting for the Company and no one else in connection with the Placing, and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Jefferies or for affording advice in relation to any transaction or arrangement referred to in this announcement. This announcement does not constitute any form of financial opinion or recommendation on the part of Jefferies or any of its affiliates and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

In accordance with the Packaged Retail and Insurance-based Investment Products Regulation (EU) No 1286/2014, the Key Information Document relating to the Company is available to investors at www.seeitplc.com  

 

END

 

 

IOEDGBDGUXBDGGD