SQN Asset Finance anaerobic digestion problems – SQN Asset Finance Income Fund has invested in a total of 15 Anaerobic Digestion (“AD”) plants since its launch. Four have subsequently been exited profitably and 11 remain in the ordinary share portfolio.
On 30 September 2019, the company said six plants were taking longer than anticipated to ramp up to production and made an impairment at that time of £3.2 million across two of these AD plants. In preparation for the interim accounts for the six months ended 31 December 2019, the company is undertaking a review of the models and projections supporting the carrying values of the AD plants. Three of the AD plants have not yet reached targeted operational capacity. A further three AD plants are performing at or above the targeted operational capacity but feedstock costs have been higher than originally anticipated.
As a result, the manager has undertaken an assessment of the valuation of these assets. Given the large number of variables and the high degree of sensitivity of each of those variables when modelled over the more than 20 year lives of the assets, the range of potential values is large. If the range of values were to be accepted and deemed appropriate for purposes of the interim accounts, a potential impairment of between 4.6 pence to 13.2 pence per ordinary share would have to be recorded. Given the wide range of potential values, and in the interests of prudent risk management, the board intends to appoint a third-party valuer to provide an independent assessment of the valuation of these assets, which will then be reflected in the 31 December 2019 net asset value. The six assets, in aggregate, had a valuation of £127.7 million, as at 30 November 2019.
The C share portfolio has no exposure to AD assets.