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Aquila Energy Efficiency fails continuation vote

Following the deadline on 24 February 2023 for receipt of forms of proxy in respect of the upcoming meeting on 28 February 2023, Aquila Energy Efficiency has announced the result of the proxy votes cast as at 2 p.m. on 24 February 2023.

Votes over a total of 46,553,793 (about 55.58% of total votes cast) and 33,933,709 ( about 40.52% of total votes cast) ordinary shares have been cast by proxy against the continuation resolution and the articles resolution respectively. These needed approval of more than 50% and not less than 75% of votes cast respectively. Consequently, based on the current proxy votes cast, the resolutions are not expected to pass at the general meeting to be held tomorrow, 28 February 2023 at 2:00 p.m. Shareholders should note that the instructions as to how proxy votes should be cast may be changed at any time until voting on the resolution has closed. Accordingly, the final voting position may be different to that indicated by the proxies cast to date.

Should the resolutions not pass, the board will consult with shareholders over proposals for the future of the company, with further announcements to be made in due course.

[We recommended that shareholders vote against continuation. The next step should be to find a merger partner we think. The obvious candidate is SDCL Energy Efficiency, but it is trading on a discount of 13.5%. That discount has widened steadily since early December 2022, for no good reason that we can fathom. However, that should not necessarily be a barrier to a merger. Neither should AEEE’s portfolio – which may not all fit SDCL’s investment style – issuing C shares (as JPMorgan Global Growth and Income did for JPMorgan Elect Managed Growth) while the portfolio is sorted out, gets around the problem. Including a cash exit opportunity for those that desire it would help address the discount issue.]

A further announcement confirming the final votes cast will be made as soon as practicable after the conclusion of the General Meeting.

AEET / AEEE : Aquila Energy Efficiency fails continuation vote

3 thoughts on “Aquila Energy Efficiency fails continuation vote”

  1. Dear James,

    I am struggling to understand your recommendation to vote against the continuation. Whilst it is true this Trust got off to a bad start losing two Board members and not deploying assets, Board appointments have been made and as of now 100% of the cash is now income generating or deployed in the construction phase.

    AEET have never fully explained the poor initial deployed of cash but it’s my interpretation that the pipeline disappeared as other renewable trusts were prepared to pay higher prices. We do know the sister trust AERS has publicly stated they walked away from very many deals because the balance of return vs credit rating meant things did not stack up. For sure what we do know is the late deployment of cash has by accident or design worked in AEET’s favour as interest rates have risen.
    If there was a time to wind-up or merge AEET it is 6-9 months ago not now.

    Some numbers from the latest RNS. Once all the assets all income generating which occurs in the next few months the return will be 8.1% less the annual management fee. This is without gearing. This would be the next natural step and would raise the return to somewhere nearer 9.5%.
    It then looks like a fairly stable trust with the dividend very substantially covered. (dividend 5p vs return of around 8p) with 68% of it’s investments in investment grade counterparties with the rest all just one notch below apart from 0.3% of the portfolio.

    I’m sure SDCL will be very happy to snap them up, but I am unconvinced that it best for shareholders of AEET. Perhaps the vote indicates it’s a case of large institutions being more interested in instant gratification by a crystallisation event close to NAV than investing for the long run.

  2. Thank you for the comment Phil. I do not disagree with you about the timing of this, but unfortunately the board timed the continuation vote to be after the trust had committed all the money. Investors lost faith in the vehicle early in 2022 as the two directors that you mention resigned over the lack of progress in investing the IPO proceeds. The trust’s share price didn’t recover from that and my feeling was that, as the smallest fund in a crowded sector and with a troubled history, it might never be able to attract sufficient attention to eliminate the discount.
    A merger with a larger, more liquid vehicle offers a route to a short-term valuation uplift while retaining exposure to an interesting portfolio – that is my preferred solution. However, if the board opts to liquidate the fund, there is no shortage of places to redeploy any cash, the whole sector appears to be out of favour currently, with just three of 22 funds trading on premiums, despite the high and growing dividend income available from these investments.

  3. Thank you for your reply James. I appreciate your insight. It’s certainly an interesting situation as a shareholder and a challenging piece of work for the Board. I’m in agreement that if the Trust is not to continue, a merger is much more likely to give a beneficial resolution at low cost to shareholders than a long liquidation process.

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