NextEnergy Solar Fund is to recycle the capital invested in its subsidy-free solar assets, redeploying the cash to cut borrowing, invest in new projects and buy back shares.
It aims to crystallise the value that it has created within its 236MW portfolio of subsidy-free UK solar assets. The proceeds will be used to:
- reduce gearing: materially reducing the amount drawn down on its revolving credit facilities;
- invest in future long-term growth opportunities: providing it with flexibility to capture higher returning investment opportunities in the future, such as energy storage; and
- buyback shares if the share price continues to trade at a material discount.
NextEnergy Solar has been backing subsidy-free solar projects since 2017, helping to tackle climate change with the development of new assets even when the UK government withdrew subsidies. This effort has been crucial in attracting new investment into the sector, advancing the UK’s net zero ambitions and energy security. The assets gave the adviser the ability to add value to the portfolio, as the assets tend to get revalued upwards by investors once the construction phase is complete, they are energised and operational. However, NextEnergy’s board, the investment adviser [and I] do not think that this has been truly reflected in the company’s recent share price.
NextEnergy Solar will sell a portfolio of five subsidy-free assets (Hatherden, Whitecross, Staughton, The Grange, and South Lowfield) and has launched a sales process to find buyers for these assets, over the coming months. Two operational subsidy-free assets will remain within the portfolio and the company remains committed to its remaining subsidy-free solar pipeline.
NextEnergy recently increased the size of its AIB/NatWest revolving credit facility from £75m to £135m. The additional debt capacity was agreed on attractive terms with a margin of 120bps over SONIA, available until June 2024. The company also signed a two-year extension to its £70m facility with Santander UK to fund its investment pipeline. Out of the total £205m available, about £39m was undrawn and available for deployment as of the end of March 2023. However, with rates rising, the board thinks it prudent to reduce the amount drawn in the near term. The reduction in gearing will reduce debt service burden, strengthen free cash flows, and further increase dividend cover.
The net proceeds will also create headroom for the next phase of growth, including into energy storage assets that the investment adviser believes will help build the NAV. The company has exclusivity over, or owns the project rights for, the majority of its roughly £500m pipeline of assets in the UK and overseas across the solar and energy storage space. This includes ownership of the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England, which when constructed will be one of the UK’s largest operational standalone battery storage assets.
Commitment to buy back shares
The company cannot formally instruct a share buyback until the end of the current close period [technically, the board has ‘inside information’ on the next set of results] which runs from the 1 April 2023 through to 19 June 2023. However, the board continues closely to monitor the current discount and confirms its commitment to buy back shares if the share price continues to trade at a material discount to NAV.
[Shareholders will be excited to see NextEnergy Solar take the initiative to drive its NAV forward and tackle its unjustified discount. This may be a route that other funds end up taking as their capital raising ambitions are frustrated.]
NESF : NextEnergy accelerates growth with sale of subsidy-free solar portfolio