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Ecofin US Renewables announces strategic review

230126 RNEW

Ecofin US Renewables (RNEW) has announced that, given the wide discounts impacting RNEW and other alternatives investment trusts, and the unfavourable short-term prospects to raise new equity as a result, the board has decided to undertake a review of RNEW’s strategy, which will centre on a sale of the company’s assets. If a sale proceeds successfully, and subject to the terms of such disposal, the intention is to return cash to shareholders – as part of a wind-up or similar transaction. The board has appointed Marathon Capital, a Chicago headquartered advisory firm with a central focus on sustainable energy, as financial adviser in conjunction with a potential transaction or transactions. RNEW says that it will make further announcements in due course.

Background to the review

RNEW’s board says that, while the US renewable energy sector continues to offer expanding opportunities for stable investment and growth, it is conscious of the challenges the company faces as a UK investment trust, including size and liquidity. RNEW’s last annual report noted that its board was open to exploring all options for the future of the company and, in connection with this, approaches were made to another listed closed ended investment company in the sector with a view to combining the two funds, although the proposal was not successful. The board says that RNEW subsequently received interest from a different listed closed ended investment company, within the wider renewables sector, regarding a possible merger but the board did not consider the proposal to be in the best interests of shareholders for a number of reasons.

The climate of higher interest rates and more challenging economic backdrop has seen most alternatives investment trusts trading at much wider discounts that takes away any prospect of raising fresh equity in the near term. RNEW would benefit from being bigger and given that expansion will not likely be possible for some time, combined with the fact that there do not appear to be any favourable merger candidates available, the board has decided to to initiate this strategic review.

There can be no certainty as to the outcome of the strategic review or any asset sale process, nor whether any potential transaction or transactions arising could be successfully completed or the valuation at which it or they could be completed. In addition, should a transaction arise that would involve the sale of RNEW’s assets, it is expected that the implementation of such transaction will be conditional upon shareholder approval at a general meeting.

[QD comment: Given the size of the opportunity for renewables in the US, particularly with the incentives available under President Biden’s Inflation Reduction Act, and the dearth of London-listed companies providing dedicated exposure to this opportunity, it is a shame that widening discounts have removed the possibility of RNEW being able to scale, at least for the time being. We applaud the board’s attempts to find an appropriate merger partner and it is disappointing that this hasn’t been a possibility. Timing can be crucial in markets and the loss of the previous management team, which pushed RNEW out from a premium to a discount from which it hasn’t been able to recover, despite subsequently appointing a very credible replacement, was unfortunate. We published a new note on the company only yesterday (click here to read). We weren’t aware that a strategic review was on the cards when the note was prepared, so there is no comment on this, but it addresses the uncertainties around outages at its largest asset in Texas, due to a damaged substation (which is not owned by RNEW). We hope that RNEW’s board is able to find a way forward that allows those shareholders who wish to remain invested in this space the opportunity to do so, but recognise that this might be a challenge.]

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