Ecofin Water & Power Opportunities has announced proposals for a reconstruction of the fund, ahead of a continuation vote, which is due to be held before the end of June 2016.
The board say that, subject to the passing of the Continuation Vote, the Company intends to propose a scheme of reconstruction with shareholders being:
(i) issued with ordinary shares in Ecofin Global Utilities and Infrastructure Trust plc, a newly incorporated investment trust that will focus on investing in global utilities and infrastructure equities and, to a limited extent, related fixed income securities (“Ecofin Global”);
(ii) issued with new ordinary shares in a newly incorporated investment company that will hold the illiquid assets of the Company (“EF Realisation”); and
(iii) offered a cash exit for up to 35% of the issued share capital of the Company.
It is proposed that the new investment trust, Ecofin Global, will focus solely on investing in utilities and infrastructure investments (excluding social infrastructure), have no ongoing exposure to unquoted equity investments or early stage listed companies – and a greater restriction on the level of investment in non-OECD countries, have a flexible gearing policy with the ability to borrow up to 25% of net assets (there will be no structural gearing) and be admitted to the premium section of the LSE’s official list.
The company says that it is expected that the board of Ecofin Global will include the majority of the existing directors of the Company and that Jean‐Hugues de Lamaze, who has worked for the investment manager, Ecofin limited, for 8 years, will have sole responsibility for the management of Ecofin Global’s portfolio. It is proposed that Ecofin Global will target an initial dividend yield of at least 4 per cent on net assets using gearing and, if necessary, reserves to augment the portfolio yield. A further continuation vote will be held in 2019 and every five years thereafter. The management fees on Ecofin Global will be charged on net assets only.
All remaining unquoted equity investments and illiquid assets, including Lonestar Resources Limited, will, pursuant to the Scheme of Reconstruction, be transferred to EF Realisation, a newly incorporated, Guernsey-domiciled investment company to be admitted to trading on the specialist fund segment of the main market of the London Stock Exchange. The company says that, based on the valuations as at 30 April 2016 the Illiquid Portfolio represents approximately £44.3m representing 14.1% of the existing company’s NAV. The company also says that there will be an orderly realisation of the assets held within the Illiquid Portfolio over the course of a period of 24 months with the net proceeds distributed to EF Realisation shareholders. The Board of EF Realisation, which will be formed in due course, will include at least one of the existing directors of the Company. Under the proposed scheme, there will be no base management fee for the management of EF Realisation but the Manager will be eligible to receive a performance fee of 15% of all cash returned to shareholders over the Performance Fee Initial Value subject to a compounding 10 per cent. hurdle and subject to a cap. The company says that the Performance Fee Initial Value will be, unless otherwise determined by the Board, the aggregate of the initial value of each asset calculated as the higher of: (i) the original cost price to EWPO; or (ii) the current holding value (the aggregate of all such valuations being the “Performance Fee Initial Value”).
In addition to the capital that will be returned to investors via the run off of the illiquid assets, the company says that shareholders will also be offered an immediate cash exit as part of the Scheme of Reconstruction for up to 35% of the issued share capital of the Company. They say that, based on the NAV as at 30 April 2016, this would equate to a cash return of up to £110m (less costs). It is proposed that shareholders will be able to elect for their proportional entitlement under the cash exit and to apply for more than their proportional entitlement, satisfaction of which will depend on other elections received. The company says that the combination of the Cash Exit and the realisation of the Illiquid Portfolio is expected to result in the return of approximately £154.3m to ordinary shareholders (based on the net asset value as at 30 April 2016), equal to 49.1 per cent of the net assets of the Company as at 30 April 2016. A circular in connection with the Continuation Vote will be sent to shareholders in due course and will include further details of the Reconstructions Proposals.
Ecofin Water & Power Opportunities publishes reconstruction proposals : ECWO