Asian Energy Impact Trust (AEIT) formerly ThomasLloyd Energy Impact Trust has announced both its audited results for the 12 months ended December 31 2022, and the six months ended 30 June 2023. The earlier results were delayed due to a drawn out dispute and then valuation uncertainty surrounding its investment in SolarArise Rewa and the Ultra Mega Solar Park ( RUMS) project from as far back as April 2022 which led to the suspension of its shares. You can read about the initial issues here, and additional coverage of the unfolding debacle, which includes whistleblower reports and various board and advisor allegations, on our website (a timeline is also provided at the bottom of this article). As a result of these disagreements, the board terminated the existing investment manager and appointed a transitional investment manager, Octopus Energy Generation, on 1 November 2023.
With the publication of this report, the company will apply to the FCA for the restoration of the listing and will make a further announcement in due course.
For the annual results to December 31 2022, the most notable development is the impact of the issues outlined above. Since IPO, the NAV per share decreased from 98.0 cents to 49.3 cents, principally as a result of a very substantial write down in the portfolio valuation at the period end and the recording of an onerous contract provision in respect of the commitment to acquire the remaining 57% interest in SolarArise India Projects Private Limited.
[QD comment: In October 2023, the company announced that it had plans to proceed with the controversial RUMS project which had led to a suspension of the fund’s shares. This came as a surprise to many investors, although as it turned out it was simply seen as the least bad option, with the official communication noting that going ahead with the project was the “less value destructive option for shareholders”, given various penalties and other costs associated with its abandonment. The big caveat being that costs of completing the project could also be ”materially higher than estimated” due to the tight timeline provided.
The 2022 report provides little clarity on this subject, other than a small update, outlined below, highlighting again the concerns around the timeline, albeit with an announcement of an extension of the deadline for the scheduled commercial operation date. The commission date remains before 31 March 2024, so one silver lining for investors is at least they will know the financial impact of the decision to go ahead with the project sooner rather than later.
It seems inevitable that the share price will crater once the stock is relisted. The big question is – how can it grow from here? Investors seem keen to keep the strategy going but anyone who wants out will need an exit at NAV if the discount is to be eliminated so that new shares can be issued.]
RUMS project ongoing
Construction of the RUMS project has commenced. On the recommendation of the transitional investment manager, the company has appointed Fichtner as the owner’s technical advisor to the RUMS project, providing boots on the ground to oversee the construction of the asset on a day-to-day basis. An official extension has been granted to the deadline for the scheduled commercial operation date to 5 February 2024. The third of five shipments of panels have arrived on site. Although risks remain on timing and the overall cost due to the size and tight timelines of the project, it is currently expected to be commissioned before 31 March 2024.
Aside from the ongoing uncertainty surrounding the RUMS project, the managers note that the future of the company relies heavily on the outcome of the current strategic review. While the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future and the going concern basis of accounting has been adopted in preparing the 2022 Annual Report and Financial Statements, the result of the strategic review is not known at this time and potential outcomes could include a managed wind down of the company. As a result, there remains a material uncertainty surrounding the company’s future and in respect of going concern.
Commenting on the results, chair Sue Inglis said: “I would like to thank shareholders for their patience over the past year. It would be disingenuous to say the period since IPO has not been without disappointment and challenges. However, the board is encouraged by the company’s progress following Octopus Energy Generation’s appointment last November and we firmly believe in the investment opportunity to deliver an impact-led renewable investment strategy in Asia. However, the future of the company will be determined by the outcome of the strategic review, on which shareholders will get a vote. In the meantime, a key priority is to look for ways to recover value from existing investments and our transitional investment manager is providing the active management to do that as we undertake the strategic review.”
Interim Results
The interim results for the period ended June 30 2023 provide little further clarity around the trajectory of the trust. NAV was 51.2 cents per share compared to 49.3 cents per share at the beginning of the year, and 98.0 cents at IPO. Acquisitions of, or commitments to, new investments are also suspended pending the outcome of the board’s strategic review of the options for the company’s future, which is expected to be completed before the end of Q1 2024.
Those interested can view a full timeline of the company’s colourful history, below:
Company Developments
The material uncertainty surrounding the investment portfolio valuation as at 31 December 2022 and the subsequent events that followed throughout 2023, including the temporary share suspension effective from 7.30 am on 25 April 2023 have had adverse consequences for the company and its shareholders. A summary of the key events is set out below.
Temporary share suspension
On 25 April 2023 the Company announced a temporary suspension in the listing of, and trading in, the Company’s shares (the “temporary share suspension”). The temporary share suspension was at the Company’s request due to a material uncertainty regarding the fair value of its assets and liabilities, in particular with regard to the 200 MW construction-ready RUMS project, which was acquired as part of the SolarArise portfolio. Further work was required to assess the quantum of the liabilities and commercial viability of the project. Due to this, the Company was unable to finalise the accounts within four months after the accounting period end date, as required by the FCA’s Disclosure Guidance and Transparency Rules.
Decision not to proceed with the RUMS project
Following the temporary share suspension, the Board appointed independent advisors to undertake detailed reviews of the liabilities associated with abandoning the RUMS project and the Company’s options for the project (including proceeding with constructing it or abandoning it). In parallel, the Former Investment Manager re-evaluated the options for the RUMS project, including the funding requirement in the event of proceeding with construction. Based on the reviews undertaken at that time, and the information provided to the Board on 31 May 2023 by the Former Investment Manager, the Board concluded that it would not be in the interests of shareholders to proceed with the construction of the RUMS project. As well as being commercially unviable, predominantly due to the high solar panel prices at that time, proceeding would breach the Company’s investment policy restrictions.
Re-evaluation of 31 December 2022 portfolio valuation proposed by the Former Investment Manager
Due to the ongoing material uncertainties regarding the Company’s financial position and in support of progressing the audit and annual report and accounts for the period ended 31 December 2022, the Board also appointed, in May 2023, PricewaterhouseCoopers LLP (“PwC”) to undertake a detailed review of the key assumptions included in the financial models and the valuation methodology of the operational assets within the portfolio, namely the SolarArise portfolio and NISPI, as at 31 December 2022 proposed by the Former Investment Manager. On 12 July 2023, the Board announced it had received a draft report from PwC and that, based on that draft, it anticipated that the final portfolio valuation as at 31 December 2022 could reflect a material downward movement that would be in addition to the costs written off and potential abandonment liabilities associated with not proceeding with the RUMS project.
2023 Annual General Meeting
At the Annual General Meeting held on 30 June 2023, alongside the standard annual resolutions to re-elect the Board which were passed, Continuation Resolutions were proposed as 75% of the net IPO proceeds had not been deployed within 12 months of admission to trading. If the Continuation Resolutions did not pass, the Directors would be required by the Company’s Articles of Association to put forward proposals for the reconstruction, reorganisation or winding up of the Company to shareholders for their approval within four months of the date of the meeting at which the Continuation Resolutions were proposed.
Given the uncertainty of the Company’s financial situation, the Board recommended that shareholders abstain from voting on the Continuation Resolutions and adjourned the AGM ahead of the shareholder vote on the Continuation Resolutions.
General meetings requisitioned by entities and funds affiliated with the Former Investment Manager
On 11 July 2023, the Company received a notice from certain entities and funds affiliated with the Former Investment Manager (the “Requisitioners”), which held 14.8% of the Company’s issued share capital, requisitioning a general meeting of the Company’s shareholders to vote on, amongst other things, the Continuation Resolutions.
On 31 July 2023 in the notices for the requisitioned general meeting and adjourned Annual General Meeting (the “August Meetings”), the Board recommended shareholders to vote against the Continuation Resolutions to be proposed at those meetings as shareholders would be unable to form a considered view of the Company as, at that time, (i) its valuation was uncertain, (ii) its principal construction asset was believed to be economically unviable and the non-completion liabilities were expected to be substantial, (iii) the audit of its financial statements for the period ended 31 December 2022 and associated annual report and accounts could not be completed, (iv) its shares were suspended from trading and (v) there was no clear strategy for the future of the Company.
Prior to the August Meetings a second notice from the Requisitioners was received by the Company requisitioning a further general meeting to consider ordinary resolutions that the current Board be removed from office as directors of the Company and replaced with new directors nominated by the Requisitioners with immediate effect.
Ahead of the August Meetings that were held on 24 August 2023, the Board continued to provide updates to shareholders on material new information in support of its recommendation to vote against the Continuation Resolutions. At the August Meetings, shareholders representing 58% of the votes cast (and a majority of the issued share capital) voted against the Continuation Resolutions in line with the Board’s recommendation. The Board immediately commenced an evaluation of the options for the Company’s future in view of its obligation, under the Company’s Articles of Association, to put proposals to shareholders for the reconstruction, reorganisation or winding-up of the Company by 24 December 2023.
The second requisitioned general meeting was held on 25 September 2023. Shareholders representing approximately 54% of the Company’s total issued share capital supported the current Board and the resolutions to replace the current Board were not passed.
Change of Investment Manager
As the Continuation Resolutions were not passed at the August Meetings, the Company was entitled to terminate its investment management agreement with the Former Investment Manager summarily at any time and without further payment in respect of the Former Investment Manager’s initial five-year term of appointment. Due to the deteriorated relationship with the Former Investment Manager and concerns on the quality and timeliness of information provided by it to the Board, the Board determined it would be in the best interests of shareholders to terminate the Former Investment Manager’s appointment as the Investment Manager.
Following a competitive tender process, the Board announced on 28 September 2023 that it had agreed heads of terms to appoint Octopus Energy Generation as the Transitional Investment Manager for an initial term expiring on 30 April 2024. Following completion of the customary take-on and regulatory procedures, Octopus Energy Generation’s appointment with immediate effect was subsequently confirmed on 1 November 2023.
Decision to proceed with the RUMS project due to changed circumstances
On 11 October 2023 the Board announced its decision to proceed with the RUMS project due to it having become the least value destructive option for shareholders. This was based on the advice received from the Former Investment Manager that:
- panel prices had fallen by 30% which meant that the negative NPV was significantly less than at 31 December 2022;
- aborting the RUMS project would: (i) crystallise an immediate write off of US$8.9 million of costs incurred in respect of the project as at 30 September 2023; (ii) result in the encashment of US$1.2 million of performance bank guarantees; (iii) potentially indirectly expose SolarArise to abandonment liabilities (net of the performance bank guarantees) of up to US$32.3 million and likely protracted associated litigation; and (iv) lead to reputational damage that could adversely impact the value of the SolarArise platform; and
- whilst the RUMS project was clearly not value accretive, proceeding to construct it would: (i) allow SolarArise to better manage its liabilities in respect of the RUMS project, providing greater certainty compared to a very uncertain process of aborting it, both in terms of the value of any potential abandonment liabilities and the expected timeline for settlement; and (ii) add a further 200 MW of capacity to the SolarArise platform and, once operational as part of a wider portfolio, may facilitate a more attractive exit of SolarArise in any future liquidity event.
To proceed with the RUMS project, the Board put forward a resolution to amend the single country limit in the Company’s investment policy to avoid any potential breach of that limit as a consequence of proceeding with the RUMS project (and also to make clarificatory changes to the gearing policy), which was passed at a general meeting held on 31 October 2023.
Change of name and new corporate website
On 27 October 2023, the Company changed its name to Asian Energy Impact Trust plc. The Company launched a new corporate website, https://www.asianenergyimpact.com/, on 1 November 2023.
Winding-up proposal
In accordance with its obligation to put forward proposals for the reconstruction, reorganisation or winding-up of the Company to shareholders for their approval within four months of the Continuation Resolutions not having been passed, the Board convened a further general meeting on 19 December 2023 to consider a resolution to wind-up the Company and appoint liquidators. The Board had considered possible options for a reconstruction or reorganisation of the Company but, given, in particular, the concentrated and illiquid nature of the Company’s portfolio and the current size of the Company, the Board concluded that a reorganisation or reconstruction was not viable or in the best interests of shareholders as a whole. Accordingly, in order to comply with its obligation under the Articles, the Board’s only option was to put a winding up proposal, but recommend shareholders vote against the resolution principally for the following reasons: (i) if the resolution was passed, it was expected that the listing of the Company’s shares would be permanently suspended; and (ii) if the resolution was not passed (in-line with the Board’s voting recommendation), the Board would have the additional time needed to complete the strategic review of the options for the Company’s future and shareholders would have the opportunity to vote on the outcome of the strategic review. Shareholders representing 83% of the votes cast (and 69% of the issued share capital) voted against the winding-up resolution, in line with the Board’s recommendation.