JLEN Environmental Assets has signed an agreement for the sale of 51% of a portfolio of six gas-to-grid anaerobic digestion (AD) facilities to Future Biogas. The proceeds of the sale are £68.1m, in line with the valuation as at 30 June 2024. JLEN will continue to own the other 49% of the portfolio, as well as its interests in three further AD assets which are not part of the agreement.
Future Biogas has been the operator of all of these assets since JLEN bought them over the period between 2017 to 2019, and it developed five of the six itself. JLEN thinks that the new arrangement provides a greater alignment of interests between them. It sees the potential for further asset enhancements and life extensions beyond the period covered by the current Renewable Heat Incentive (RHI) subsidy that these assets attract. It believes that these initiatives will deliver uplifts to the valuation of the AD portfolio over time.
The six assets being sold have a combined generating capacity of 38MW and gas output of 333GWh. They are located in the East of England and have been operational since 2013 – 2016. All of the projects in the AD Portfolio benefit from a RHI and Feed-in Tariff subsidy.
What will JLEN do with the money?
JLEN has previously said that proceeds from sales will be used to pay down debt and consider share buybacks. The proceeds will be used to repay some of its revolving credit facility and fund a £20m share repurchase programme.
The board and the manager [and us] continue to believe that the discount at which JLEN’s shares are currently trading materially undervalues the company, and so buybacks represent an attractive investment opportunity delivering NAV accretion for shareholders.
The board and the manager are continuing to progress further targeted asset sales to recycle capital within the portfolio. [We are definitely in favour of recycling capital into new projects but wish wholeheartedly that share buybacks were not needed. JLEN’s discount at 18% is better than many of its peers but is still unjustified. The cost disclosure issue that was one of the principal causes of these discounts emerging, needs fixing now.]
3i Infrastructure’s involvement
£30m of the £68.1m purchase price is being funded by 3i Infrastructure. It says that since it first backed the business, it has transitioned from being a third-party plant operator to an asset owner and developer, with a 1.3TWh pipeline of new sites. It is currently building a plant at Gonerby Moor, which will operate on an unsubsidised basis under a 15-year green gas offtake agreement with AstraZeneca.
3i Infrastructure feels that the deal provides Future Biogas with immediate scale, which it expects will be attractive to potential acquirers when it decides to exit.
JLEN / 3IN : JLEN Environmental sells slice of AD portfolio to firm backed by 3i Infrastructure
