Saba Capital has followed co-activist RM Funds in demanding Gore Street Energy Storage (GSF) publish full details of the sale of two of its Irish assets last week as the hedge fund urged other shareholders back its vote for the battery fund to be wound up.
In an open letter calling on shareholders to back its resolutions for the investment trust to be discontinued at the annual general meeting on 16 September, Saba said the disposal of the Kilmarnock and Mucklagh projects to GS EU, a fund run by its investment manager, did not inspire confidence.
Saba, which holds 17% of the £244m investment trust, said GSF should publish the price paid by the fund managed by Gore Street Investment Management and detail how the fund’s adviser Alexa Capital had conducted what the company said was a “competitive” auction.
“A sale to a fund run by the company’s own manager, at a price shareholders are not allowed to see, cannot be taken on faith,” it said, adding: “If the process was as robust as the board says, disclosure costs it nothing.”
Saba dismissed GSF’s statement that the price was “no less than the values ascribed for these assets in the most recently published NAV [net asset value]”.
“That is a weak assurance, because the board has been cutting carrying values across the book, with group NAV down around 15% in the last quarter alone,” said Saba, echoing criticism made by RM Funds’ Pietro Nicholls.
The US firm, which has stakes in dozens of investments and has this year taken control of Impax Environmental Markets (IEM) and Edinburgh Worldwide (EWI), said it had written privately twice to the GSF board this year.
In the first letter it had asked GSF to tender for a new fund manager.
In the second it had argued against the board’s recovery strategy announced in March of seeking disposals to fund revenue-enhancing investments in the portfolio’s battery storage assets to support a fixed 7p per share dividend, warning this would be insufficient to re-rate GSF’s battered share price.
“Both requests were ignored. Six months later, even after the board cut NAV by 27% over the year, the shares still trade at a 35% discount to that reduced figure, and the dividend is covered just 0.28 times by operational earnings. That is the record the board asks shareholders to endorse,” Saba stated.
Saba denied that voting for a wind-up would force a damaging “fire sale” of assets, as GSF has warned, saying that a vote for its resolutions 16 and 17 would still require the board to decide how long it would take to return capital to shareholders.
“The real risk to value is the status quo, an uncovered dividend funded by disposals at prices shareholders never see,” it said.
In response, the Association of Investment Companies (AIC) encouraged GSF shareholders to act quickly to ensure they could decide on the company’s future. Voting deadlines on platforms start at 9 September at AJ Bell and Fidelity, although Hargreaves Lansdown and Interactive Investor will accept votes up to 10 and 11 September respectively.
AIC chief executive Richard Stone said: “Shareholders need to act swiftly to have their say on the future of this company. Gore Street Energy Storage Fund provides one of the few opportunities for retail investors to invest in energy storage assets. If Saba’s proposal to wind up the company is passed that opportunity will disappear. This is an important decision that will determine whether this investment company continues. It’s critical that shareholders think through the implications and vote to make their voices heard.”
Our view
Matthew Read, senior analyst at QuotedData, said: “There is nothing new in Saba’s statement regarding Gore Street Energy Storage this morning that changes our view on the situation. Specifically, the new board has moved quickly to establish a sensible strategy, which it is now implementing. Saba’s attempt to force a wind-down at this point is way too short term and risks eroding significant value by turning GSF into a forced seller. We think shareholders will be better served by giving GSF’s refreshed board time to implement its strategy. Asset sales are underway and the planned battery duration extensions are expected to increase revenues from the affected GB assets by at least 30%, increasingly their value markedly to potential buyers. We would reiterate shareholders also have the backstop of a continuation vote if the board misses its stated KPIs.”
