New Asian renewables fund – ThomasLloyd Energy Impact

New Asian renewables fund – ThomasLloyd Energy Impact

ThomasLloyd Energy Impact Trust (TLEI) is aiming to raise up to $340m for a new fund established to invest in a diversified portfolio of unlisted sustainable energy infrastructure assets in fast-growing and emerging economies in Asia. There will be a placing, offer for subscription and intermediaries offer and, if successful, the company’s shares will be admitted to the premium listing segment and trade on the main market of the London Stock Exchange.

The investment manager is ThomasLloyd Group, a leading impact investor and provider of climate financing. Founded in 2003 and with a history of sustainability in investment management and advisory, ThomasLloyd is one of the longest-established and most experienced investors in sustainable energy infrastructure in high growth and emerging markets in Asia.

The company is targeting an annual dividend yield of at least 7% in respect of periods commencing after 1 January 2024, with the aim of progressively increasing the annual nominal target dividend in future periods. Prior to this, it is targeting an initial annual dividend yield of 2-3% in 2022, rising to 5-6% in 2023. The company will target a NAV total return of 10-12% per annum (net of all fees, expenses and taxes) over the medium-to-long term.

The company will be investing in a diversified portfolio of unlisted sustainable energy infrastructure assets in the areas of renewable power generation, transmission infrastructure, energy storage and sustainable fuel production in fast-growing and emerging economies in Asia.

It is expected to qualify for the London Stock Exchange’s Green Economy Mark (which recognises companies that derive 50% or more of their total annual revenues from products and services that contribute to the global green economy). As a fund that has sustainable investment as its objective, the company is also expected to qualify as an Article 9 fund under the EU Sustainable Finance Disclosure Regulation (“SFDR”).

Highlights (taken directly from the announcement)

Compelling market opportunity arising from the growth in GDP, population and urbanisation driving power demand in LMIC countries in Asia

• First ever dedicated offering on the London Stock Exchange providing direct access to sustainable real assets in fast-growing and emerging economies in Asia.
• Asia’s 4.6bn people account for more than half of global energy consumption – 85% of that consumption is from fossil fuels. Carbon emissions in Asia are now greater than Europe and North America combined.
• Economic and population growth, together with rapid urbanisation, in Low Middle Income Countries (“LMIC”) in Asia is driving huge demand for funding to develop and upgrade existing energy infrastructure.
• The average ‘carbon cost‘ of GDP (being the amount of carbon released in proportion to the generation of US$1 of GDP) in Asia is almost four times as high as that of the four largest economies in Europe, making investment in Asian renewable energy vital to achieving a Net Zero world by 2050.
• The Company believes that private capital will play a critical role in closing the funding gap in the expected c. US$1 trillion funding shortfall for current infrastructure investment spend across India, the Philippines, Indonesia, Vietnam and Bangladesh.
• TLEI intends to provide investors with an attractive level of dividend income and the prospects of dividend growth and capital appreciation over the long term, delivered with low volatility and uncorrelated to other asset classes and also offers geographical portfolio diversification to investors who already have exposure to infrastructure assets in developed markets. 

Prospect of long-term dividend income in excess of 7% per annum from sustainable investments with stable cash flows and delivering significant environmental and social impact

• TLEI believes its proposed portfolio of diversified Sustainable Energy Infrastructure Assets will generate stable long-term cash flows, in support of its dividend targets yielding:
  • 2-3% for the first financial year to 31 December 2022,
  • 5-6% for the year ending 31 December 2023 and
  • at least 7% per annum thereafter, and targeting progressive dividend growth.
• TLEI is targeting a net asset value total return of 10-12% per annum over the medium-to-long term.

Anchor investor, an affiliate of the Investment Manager, to receive US$35 million in ordinary shares as part consideration for seed assets

• US$35 million of the consideration for the seed assets contributed by the anchor investor, an affiliate of the Investment Manager, to be settled through the issue of ordinary shares at US$1 per share (the “Consideration Shares”), ensuring strong alignment of interests of shareholders and the Investment Manager.
• The Consideration Shares will take the total initial issue to US$335 million.
• The anchor investor’s holding of the Consideration Shares will be subject to market standard lock-in conditions.
• In-principle decision from FCDO to make an investment of up to £25 million as part of UK Government’s FCDO Initiative to mobilise capital to emerging and developing countries (subject to completion of FCDO’s diligence)
• TLEI is a finalist in the UK Government’s Mobilising Institutional Capital Through Listed Product Structures (“MOBILIST”) programme run by the Foreign, Commonwealth & Development Office (“FCDO”).
• As announced at COP26 Finance Day, the MOBILIST programme has taken an in-principle decision to make an investment of up to £25 million in TLEI, subject to conclusion of diligence.
• This demonstrates the UK government’s commitment to closing the UN Sustainable Development Goals (“SDGs”) financing gap and enabling through listed financial products a greater flow of climate finance to emerging markets and developing countries.

 Seed assets worth approximately US$59 million, comprising interests in platforms with more than 500 MW of electricity generating capacity once fully operational

• The seed assets comprise nine operational and one in-construction utility-scale solar projects in India and the Philippines, with a significant majority having long-term power purchase agreements in place, providing visibility of future income and cash flows for a 20+ year period.
• The operational seed assets have a well-established operating track record of up to 5 years.

Pipeline of assets in excess of US$750 million with more than 1,500 MW of electricity generating capacity identified

• Immediately available pipeline of sustainable energy infrastructure opportunities in India, the Philippines as well as Indonesia, Vietnam, Bangladesh and Sri Lanka.
• Investment pipeline comprises construction ready and operational projects.
• IPO proceeds are expected to be substantially deployed, either invested or committed (pursuant to legally binding arrangements), within 6-9 months from Admission.

Prudent, well-established investment policy designed to optimise financial and ESG returns while mitigating risk

• Partner network: The initial sourcing strategy for the new markets in the investment pipeline will be an expansion of the Investment Manager´s existing operating platforms.
• Geographical focus: The portfolio will be diversified across a number of different countries.
• Proven technology: The Company will only invest in commercially proven renewable energy technologies.
• Capital allocation between construction-ready and operational assets: Investments in construction phase assets will not exceed 50%.
• Single asset diversification: No single asset will account for more than 25% of GAV.
• Offtake agreements: The Company will seek to enter into offtake agreements with high creditworthy organisations primarily being government or quasi-government entities.
• Leverage: The Company itself will have no borrowings. Long-term debt at intermediate holding company or project SPV level will not typically exceed 65% of GAV on an unlevered, discounted cash flow basis, with the Company targeting below 50% in the medium term.  Such borrowings will be in local currency or US dollars and primarily on a non-recourse project finance basis and amortising over the life of the relevant offtake agreement, mitigating refinancing risk.
• Hedging: The Company intends to hedge all anticipated dividends in respect of assets where the offtake agreement is denominated in currencies other than USD for at least two years on a rolling basis.
• Demonstrated track record of commitment to the highest standards of ESG investment: The Investment Manager is a signatory to the UN-supported Principles of Responsible Investment and has a demonstrated track record of measuring and delivering direct impact against the UN SDGs.

Highly experienced Board and Investment Manager with a proven track-record

• The Board comprises four independent non-executive Directors, headed by Sue Inglis as Chair, all of who bring a broad range of relevant skills and deep experience to the Company.
• ThomasLloyd is a leading impact investor and provider of climate financing, managing investments in renewable energy power generation, transmission infrastructure and sustainable fuel production in fast growing and emerging economies in Asia with total asset values in excess of US$750 million.
• The investment manager has a 10-year track-record of managing sustainable energy infrastructure assets across the entire project lifecycle and capital mix and managing a similar income generating investment strategy to the Company where it has delivered a 3-year gross return of 11.1%.

Comment – Sue Inglis, chair of ThomasLloyd Energy Impact PLC, said: “ThomasLloyd Energy Impact Trust is an agent for urgent change, focused on delivering sustainable energy infrastructure in fast-growing Asian markets. Demand for energy in Asia is profound and set to rise in the coming decades. Asia is home to 60% of the world’s population and the challenge of CO2 emissions in Asia is becoming ever more pressing. Investing as usual will not get us to Net Zero.

With a target NAV total return of 10-12% per annum, the company will provide shareholders with an attractive level of dividend income and prospects for dividend growth and capital appreciation over the long term. Critically, the company will also help to reduce global greenhouse gas emissions, while delivering economic and social progress – a critical triple return. The investment manager is highly experienced, with an outstanding track record of delivering investment returns combined with genuine and tangible positive impact.“

You can read the whole announcement here

[We have said before that, as the renewable energy sector becomes increasingly crowded, it is important that new issues offer something genuinely different if they want to capture investors’ imagination. This proposed launch seems to tick that box and it is interesting that it has some sizeable seed investors lined up. We’ll bring you the prospectus once it’s published.]

TLEI : New Asian renewables fund – ThomasLloyd Energy Impact