Ecofin US Renewable Infrastructure (RNEW), an £18m investment trust in the third year of its wind-down, has warned its two largest shareholders against making further purchases in its stock or risk the fund losing tax breaks, including shelter from capital gains tax.
In a market announcement this afternoon, RNEW’s chair, restructuring expert Brett Miller, said that the proportion of shares held by the public had fallen to 38%, close to the 35% limit below which it would be considered a “close company” and would lose its investment trust status.
“If a top five shareholder in the company, which itself is not an investment trust, purchases further shares in the company there is a risk that the company falls below the 35% threshold referred to above,” leading to the loss of its CGT exemption and “other tax consequences”, he said.
This is similar to the position Manchester and London (MNL), the £327m global technology trust where Miller is also a non-executive director, found itself in last September. MNL had to stop share buybacks and give shareholders a dividend hike in compensation after its proportion of shares in public hands fell close to the 35% threshold.
MNL’s problem was more acute because fund manager Mark Sheppard held 62% of the shares. The tax consequences of it losing investment trust status were also potentially more severe because of the impressive gains the portfolio had made in the AI boom of the previous two years.
By contrast, at 20 US cents RNEW shares are a fifth of their $1 launch price in 2021. They also languish on an 56% discount below estimated net asset value of 40.6 cents, meaning there are no taxable gains.
However, Miller’s intervention comes as RNEW prepares to pay out around $10m via the issue and immediate cancellation of B-shares. This will distribute to shareholders most of the initial tranche RNEW received in the $30m sale of Whirlwind, the Texas wind farm that was its biggest asset accounting for around a third of the portfolio, which it announced in November.
Since that announcement, Asset Value Investors, the activist manager of MIGO Global Opportunities (MIGO) and AVI Global Trust (AGT) has accumulated a 21.4% stake on behalf of investors in the UK and Finland. MIGO separately disclosed a 7% stake in October, while its open-ended sister fund WS AVI Worldwide Opportunities revealed it held 3.3%. Fina SPV Oy, a Finnish investment vehicle that invests in AVI Japan Opportunities (AJOT) trust, also held 4.3%.
Separately, in September US hedge fund Almitas Capital lifted its holding from 19.8% to 24.4%.
RNEW has been self-managed since last May when it terminated its management contract with Ecofin Advisors.
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