Investment trust SDCL Efficiency Income (SEIT) is to start a managed wind-down after shareholders rejected a plan to turn the fund into an energy services operating company.
A ‘significant number’ of shareholders spurned a proposal from the board and investment manager Sustainable Development Capital for a ‘strategic realignment’ of the trust.
These long-suffering shareholders in the trust, which languishes on a near-50% discount to net asset value (NAV), have decided they want their money back instead.
What is SEIT?
‘SEIT’ is a FTSE 250-listed fund that invests in projects that either provide decentralised on-site generation of power and heat, or reduce energy demand. The £494 million cap trust’s projects are mainly located in the UK, Europe and North America.
In a strategic update, the board said it has ‘unanimously concluded’ that it is in the best interests of shareholders, as a whole, to pursue a managed wind-down.
By way of background, SEIT had been seeking to sell investments to reduce gearing and improve liquidity. But the process ‘proved challenging’. SEIT did manage to sell a portfolio of operational and yielding energy efficiency infrastructure assets for an enterprise value of up to £105 million.
Unfortunately, the price represented a rough 9% discount to the carrying value of the portfolio.
‘The disposal process took longer than anticipated and illustrates some of the challenges of making disposals at reasonable valuations in the current market’, explained SEIT.
Challenging backdrop
Chairman Tony Roper explained: ‘Since the material increase to interest rates in late 2022, the macro environment and investment trust landscape has become increasingly challenging.’
Roper said it has become clear that SEIT, like a lot of its investment trust peers, can ‘no longer deliver returns that are acceptable to shareholders in its current structure and the status quo is not viable.’
Therefore, a managed wind-down is ‘the most appropriate course of action’ to deliver value and provide shareholders with ‘a clearer path to realisations’.
Sensible first step?
QuotedData’s James Carthew is in favour of SEIT’s decision to pursue a managed wind-down, ‘as long as it doesn’t prioritise speedy returns of capital over achieving decent prices for its assets’.
Carthew continued: ‘The statement makes it clear that it is not easy to make disposals in the current environment – so let’s not rush things. At the same time the portfolio is generating significant cash flows that could be used to pay down debt. That feels like a sensible first step to me.’
Winterflood’s Emma Bird commended the board for undertaking a comprehensive review of options given the sustained wide discount. The analyst also praised the board for taking action based on shareholder views, ‘despite these being at odds with the manager’s proposal’.
Bird noted that while some Property investment trusts have successfully internalised management and changed listing structure, there has not been support for such action in the Infrastructure sector.
Shareholders rejected similar proposals at Bluefield Solar Income (BSIF) last year.
‘As such, SEIT will follow a number of other Renewable Energy Infrastructure funds by entering a managed wind-down, although the timing and quantum of capital to be returned to shareholders is uncertain, with the announcement highlighting the challenging sales environment on multiple occasions.’
Read the press release here: https://www.seitplc.com/investors/
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