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ThomasLloyd Energy Impact Trust finally details the gravity of the Indian debacle

ThomasLloyd Energy Impact Trust (TLEI) has provided an update to its share suspension, and the status of its Rewa Ultra Mega Solar Park (RUMS) Project which led to said suspension. This was labelled as a notice of AGM and dividend declaration announcement, which may have meant that investors missed it.

The RUMS project is held in a special-purpose-vehicle (SPV) that is in turn owned by SolarArise, one of TLEI’s portfolio companies which it wholly owns.

TLEI’s shares have been suspended since 24 April 2023, when it made the initial announcement of the uncertainty in the RUMS Project valuation. TLEI has yet to publish its annual report.


TLEI originally made its successful bid for the RUMS Project, a solar power asset based in India, in July 2021, with all documents being signed by November. The initial bid for the project was $78.4m, to be funded with $62.7m in debt and $15.7m in equity, and offering an IRR of 13.5%.

During a meeting held in April 2023, in which the investment managers advised the board that contracts would need to be signed imminently with the relevant engineering, procurement and construction (EPC) contractor, it became apparent that significantly more equity funding was required to compete the project, calling into question its economic viability.

This cost increase was due to a big rise in solar module costs, an increased cost of the EPC contract, goods and services tax and adverse movements in exchange rates. One of the major driving factors behind these cost increases was the implementation of basic customs duty in India of 40% on imported solar modules and 25% on imported solar cells from 1 April 2022; in addition to supply chain issues within the solar market.

Work on the RUMS Project had already begun prior to the share suspension, with pre-construction work commencing on 246 of the 250 hectares of the project, with grid connection infrastructure also under construction. Debt agreements for the project had also been signed in November 2022.

Because of the wider disruption facing the solar sector, the Indian Government may extend the completion deadline to 31 March 2024, this is subject to approval (and thus not guaranteed).

Current situation

If the construction does not continue, the SPV could be saddled with liabilities of up to $33.5m, though the actual figure could be much lower after mitigation actions are taken. If, though, the project does go ahead, the board has been advised that approximately $50m in additional equity funding will be required to complete the contract (which includes a $5m late-completion penalty). $44m of this would need to be siphoned from TLEI into SolarArise and it isn’t obvious to us where this could come from. In addition, the likely net present value of the completed project is said to be negative.

The net of this is that the investment managers have indicated that it would not be appropriate for the trust to proceed with the RUMS Project. The board has come to the same conclusion and will not commit additional funds to SolarArise at the current time. The investment manager will continue to evaluate the options available to the RUMS Project.

It looks as though there is a good chance that the SPV will fail. While SolarArise could have to stump up $1.2m to meet bank guarantees, TLEI has not provided any other guarantees in respect of the SPV’s liabilities, and the board has been advised that creditors to the SPV are unlikely to have recourse to any other group company.

Based on 30 September 2022 figures, TLEI is valuing its stake in RUMS at $5m. However, SolarArise has spent about $6m so far and we expect that this will be written off, plus the $1.2m of bank guarantee exposure referred to above.

AGM and continuation vote

TLEI’s board is not currently able to provide a timetable for completion of the audit of the financial period ended 31 December 2022 and its share suspension will remain until it publishes its 2022 financial year annual report.

TLEI’s AGM will still be held on 30 June 2023. However, the board intends to adjourn that half way through and then host an adjourned AGM to address several additional resolutions it does not believe are appropriate to hold without shareholders having received an annual report. This adjourned AGM will be held on the same date as the Accounts Meeting, which will be announced following the eventual publication of its 2022 Annual report.

Given the mess, the dividend is being held at 0.44 cents rather than being increased as targeted at the time of the IPO.

The statement says that TLEI will not be making further investments at this time. We note that because TLEI has failed to invest 75% of its IPO proceeds within its first 12 months of trading, a continuation vote will be required. If it fails to pass the board will be required to put forward proposals for the reconstruction, reorganisation or winding up of TLEI. This continuation vote will be put forward at the Adjourned AGM.

ThomasLloyd has also used the announcement to provide an update on the investment management team, whereby they have made a number of senior appointments within the asset manager, including a new chief investment officer, head of portfolio & asset management, and chief operating officer.

[QD comment: It is unfortunate that such a hugely important update was labelled as ‘notice of AGM and dividend declaration’. We hope that shareholders will pick up on it.

This is almost the worst possible outcome for TLEI shareholders. They are effectively faced with a damned-if-you-do, damned-if-you-don’t, situation. The most immediate question is why the investment managers let this situation get so bad, were they truly blindsided by the passing of the solar asset tax (in April 2022) or were they in over their heads from the start. Questions will be asked about the competence of ThomasLloyd, especially as the statement goes on to say that the manager has recently beefed up its team with a number of new hires, suggesting that there were deficiencies there beforehand.

Such assessments of the investment managers’ quality will need to wait however, as the most immediate question is whether they can mitigate the cost to the trust in the event of abandoning the construction project. While we have been given a detailed, and much needed, assessment of how TLEI got into this position, a more detailed breakdown of the next-steps available to the trust, and the actual costs facing shareholders, will be needed. However, as is indicated by the length of this news article, TLEI shareholders are facing an immensely complicated issue, straddling the complexities of both the Indian energy market as well as possible legal ramifications should creditors sue the SPV and SolarArise to recover their assets.

Hopefully more light can be shed on the 30 June, though given the complexity shareholders may still come away from that AGM unsatisfied. Fortunately, it looks as though shareholders will eventually have the opportunity to take control of their own destiny, given the promised continuation vote. Although, who knows when we will see the annual report filed.]

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