GlobalCapital: London Investment Trusts Continue Green Funding

General/ 12 February 2021

London’s investment trusts have been tapping a deep pool of equity capital earmarked for green-linked deals. On Friday, SDCL Energy Efficiency Income Trust (SEEIT), the UK-listed energy efficiency investor, closed a £160m raise, £60m more than its original target and on the same day Greencoat UK Wind, the investment trust focused on UK wind farms, launched a £197.6m follow-on. Both SEEIT and Greencoat are frequent issuers of new shares demonstrating that green companies can keep coming back to equity markets for capital as long as there is a clear use of proceeds and a strategy to achieve growth.

The deals follow-on from a record start to the year for green ECM issuance. GlobalCapital reported on Thursday that there has been $2.3bn of paper issued already this year, according to Dealogic data. The figure is almost double that issued in 2020 which itself was a record start to a year for the asset class. Sources say that huge inflows into asset manager’s ESG funds is driving this flow, but they also need something to buy.

SEEIT is a regular ECM issuer and uses the proceeds of its raises to business fund growth. Last October the company bought Swedish regulated gas distribution network Värtan Gas Stockholm and completed a £105m equity sale and small debt issue to part-finance the purchase. Jonathan Maxwell, CEO and founding partner of SDCL, the investment manager behind SEEIT, says that the sector that his company invests in has matured meaning that there are far more assets for it, which is increasing capital markets deal flow.

“We have got a very interesting investment universe where we can make high quality investments and there are good solid predictable returns associated with that,” Maxwell told GlobalCapital. “We are also playing into a sector that is growing because of the macro themes of lower carbon emissions and improving resilience.

“So the momentum that is driving these deals is not just the interest from a huge amount of capital ready to be deployed, but also the fact that we are creating a vehicle that can absorb that interest. There is more going on in the clean energy infrastructure space than there ever has been before.”

SEEIT sold 150.9m new shares at £1.06 each to fund further investment in a pipeline of opportunities. The company said at launch that it also had organic opportunities to make further investments into projects within its existing portfolio. These include investment partnerships in the US; one into commercial and industrial solar projects in conjunction with Onyx Renewable Partners and one in energy efficiency projects in partnership with financing company Sparkfund. The funds will also be put toward electric vehicle charging infrastructure projects across the UK in conjunction with EV Networks.

Target yield: Alongside giving investors exposure to green assets, investment trusts like SEEIT give them a steady flow of income. At £1.06 a share, the dividend yield for investors in the SEEIT deal was 5.2%, a healthy return at a time when interest rates and bond yields are low and dividend paying stocks are few and far between. The company has targeted a total return for shareholders of 7%-8% per year based off its IPO price of £1 per share. Maxwell said that the dividend yield not only bolstered interest among existing investors, but also helped bring big new names into the share register.

“The money coming in is not just coming into the sector because it is green, it is coming in because these are high quality infrastructure projects that work and generate an income stream,” he said. “This investment is also being driven by commercial merits.”

Jefferies was sole bookrunner on the deal. SEEIT has already tapped equity markets seven times including its 2018 IPO and would certainly be able to go back to equity investors if it needed more capital but Maxwell said that SEEIT now had enough capital on hand to see through its next phase of investment so was unlikely to be returning to equity markets soon.

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