TIDMVEN2 TIDMVNC TIDMVND
RNS Number : 6053Q
Ventus 2 VCT PLC
01 March 2021
Ventus VCT PLC and Ventus 2 VCT PLC
Proposed disposal of assets
Further to recent announcements, the boards of Ventus VCT PLC
and Ventus 2 VCT PLC (collectively the "Boards" and the
"Companies") and Temporis Capital Limited ("the Investment
Manager") have been carrying out an extensive review of the
Companies' future. This is a joint announcement by both
Companies.
Limited life
As discussed in previous publications, the existing assets have
finite lives and the Companies are unable to make new investments
into renewables due to the changes made since 2014 to the Venture
Capital Trust ("VCT") rules [1] . Consequently, the Net Asset Value
("NAV") - being the present value of all the future cashflows
generated by the assets - will start to fall as the remaining
subsidy periods expire and operating lives decrease.
Increasing costs
The Boards, together with the Investment Manager, have
endeavoured to reduce costs wherever possible to offset these
headwinds. Achieved cost reductions have included a significant
decrease in the future annual investment management fees payable to
the Investment Manager [2] . Nevertheless, the Companies have
significant fixed costs, including those to fulfil their
requirement to be listed on the London Stock Exchange, that will
increase with inflation [3] . This combination of falling NAV and
rising costs will cause the Total Expense Ratio ("TER") - being
total costs divided by NAV - to increase in the future.
It is clear to the Boards that, in the medium term, there may be
an imperative to sell assets as increasing costs erode shareholder
returns. The Boards and Investment Manager have therefore been
analysing the options for Shareholders, by comparing the returns
from selling now, to the returns from holding the assets for longer
periods.
Value of the assets
The secondary market for the assets owned by the Companies has
recovered from the disruption of the pandemic [4] and, in the
opinion of the Boards, the Investment Manager and several financial
advisers, is currently considered to be very favourable for
sellers. The Boards recently sought indicative prices for the
Companies' assets to confirm this view. This exercise has indicated
that the sale of assets could be expected to deliver a premium of
at least 25% and 32% to the respective weighted average share
prices of Venus VCT PLC and Ventus 2 VCT PLC at the market close
prior to this announcement [5] . The premium would be lower for the
Companies' ordinary share classes and greater for the D share
classes but nevertheless there would be a significant premium
across all share classes.
It should be stressed that this evaluation is based on
expressions of interest and not binding commitments and that they
may or may not result in any or all of the Companies' assets being
realised or at these levels. No forecast or projection is expressed
or implied.
Considerations in assessing alternatives for Shareholders
The Boards have considered the potential returns and risks for
Shareholders from remaining invested, as compared to selling the
assets. As part of this process, the Boards have reviewed the
specific tax advantages that Shareholders may benefit from due to
the Companies' VCT status.
- The current dividend payments will not be sustained from income:
o The assets are limited life, and as they age and pay dividends
to the Companies, their value (the NAV) and therefore the
Companies' share prices, will start to fall [6] .
o Future dividends will increasingly comprise a return of
capital rather than a distribution of profits. As an illustration,
if the assets generate a return to Shareholders of 3% per annum
after the deduction of costs, and pay a dividend yield of 5% per
annum, the NAV will fall by 2% annually [7] .
- The returns from shareholders remaining invested as compared
to selling now are considered inadequate:
o The anticipated return to shareholders is estimated to be
about 3% annually over the medium term as compared to the likely
cash proceeds from a sale [8] .
o The Directors consider that these returns are inadequate when
compared to the wide range of risks to which Shareholders would
remain exposed. As an example, if long term power price forecasts
were to fall by 10% [9] , the equivalent return would be less than
2% annually.
- The high costs offset the recurring tax benefits:
o The Directors do not believe that the continuing VCT tax
advantages offered to Shareholders justify continuing to hold the
assets.
o As investors will be aware, future dividends paid by the
Companies are tax free, including those pursuant to a sale of
assets [10] . Equally, any capital gains or losses are tax free
[11] , meaning that any future falls in the share price [12] will
not qualify for any reliefs on loss.
o As set out above, the TER of the funds will increase over
time; rising from around 2.3% of NAV in the near term to in excess
of 3.0% in the long term [13] . This high TER is likely to offset
all, or the majority, of the recurring tax benefits.
- Shareholders will receive the sale proceeds without the loss of any historical tax benefits:
o As all shareholders that subscribed to the Companies' initial
offerings have been invested for more than the five years required
to maintain the income tax relief available on subscription, those
investors that claimed these reliefs should receive the proceeds
without any loss of the income tax relief already claimed.
- Shareholders may have the opportunity to obtain the initial
30% income tax relief from a subscription to a new VCT issue:
o Should they wish to, exiting Shareholders could use the
opportunity to invest in a new VCT offering which would give those
Shareholders that qualify a 30% relief on income in the year of
subscription [14] .
Recommendation to dispose of the assets and return the proceeds
to Shareholders
In conclusion of this analysis, the Boards consider that it is
in the best interests of all Shareholders to dispose of the
Companies' assets and to return the proceeds to Shareholders.
Next steps
Having reached this conclusion unanimously, the Boards have
appointed EY as a financial adviser to assist in an orderly sale of
the Companies' assets. The sale will be subject to Shareholder
approval, and a Shareholder Circular will be published in the
coming weeks with further information and details of the General
Meeting ("GM"). Prior to the GM, an online meeting will be
organised where Directors can address any Shareholder
questions.
The Directors of the Companies together hold 544,769 shares
(1.84%) in Ventus VCT PLC and 1,410,860 shares (3.75%) in Ventus 2
VCT PLC, and have given irrevocable undertakings to support the GM
resolutions.
Market Abuse Regulation
The information contained within this announcement is deemed by
the Companies to constitute inside information as stipulated under
the UK version of Market Abuse Regulation (EU) No. 596/2014. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain.
[1] Examined in detail in the Capital Allocation Review in the
31 August 2019 accounts.
[2] As announced on the 25 June 2019 and on the 31 July
2020.
[3] As reviewed and discussed in the 29 February 2020
accounts.
[4] As highlighted in the 31 August 2020 accounts.
[5] The premium is calculated relative to the mid-market closing
price on 26 February 2021. It should be noted that there is limited
trading in the Companies' shares, and any Shareholder disposing of
a significant number of shares would likely incur additional
transaction costs (brokerage fees and dealing spread) that would
increase the premium in this calculation.
[6] Historically the shares have traded at a discount to NAV, so
if NAV falls in the future, the share price is also likely to
fall.
[7] These numbers are illustrative only. As context, the
Companies' weighted average dividend yield, as compared to the
likely cash proceeds from a sale, is approximately 5% based on the
annual dividends declared in the last twelve months (8p for the
ordinary shares, 8p for the C class shares, and 5p for the D class
shares).
[8] This represents the internal rate of return derived by
comparing the cash that a shareholder would receive from a sale in
2021, with the receipt of dividends until a sale of the assets in
2026. The assumptions used to determine the value from the sale of
assets in 2026 includes an increase in the asset life of the wind
assets to 30 years, and a reduction in the unlevered discount rate
for the hydro assets.
[9] As context, long term power price forecasts have fallen by
10% in the year to December 2020 and by 37% in the 5 years to
December 2020.
[10] Subject to the individual shareholder meeting the
requirements.
[11] Subject to the individual shareholder meeting the
requirements.
[12] Historically the shares have traded at a discount to NAV,
so if NAV falls in the future, the share price is also likely to
fall.
[13] The TER has been estimated at 2.3% for the five years to
2027, increasing to in excess of 3% for the five years to 2037.
[14] Subject to individual tax status and other qualifying
criteria.
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DISFFFLIFFITFIL
(END) Dow Jones Newswires
March 01, 2021 02:00 ET (07:00 GMT)
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