Gresham House Energy Storage (GRID) and AVI Japan Opportunity (AJOT) have joined the race of recently launched investment trusts looking to take advantage of the recovery in markets this year by raising more money.
GRID, which invests in big industrial batteries storing renewable energy, did well to raise £100 million in November when bond and equity markets were reeling. Having invested nearly £57 million so far in five energy storage systems (ESS) and with a further five in the pipeline, it is looking to place up to 75 million new shares with institutional investors.
At an issue price of 101p – just 1p more than its initial public offer (IPO) – the placing could raise nearly £76 million before costs, which would bring the closed-end fund close to its original target of £200 million.
The price of the new shares represents a 2.5% discount to the 105p the existing shares closed at on Wednesday and a 2.5% premium above their underlying net asset value (NAV) 99.95p per share at the end of March, which has risen from 98p in December. The small premium will cover the costs of the placing and means existing shareholders will not be diluted.
GRID shares have dipped 0.6p to 104.4p this morning.
The new shares will rank alongside the existing ordinary shares but will not be entitled to the company’s first 1.4p per dividend declared today, which will be paid in June. GRID reaffirmed its target of paying a total of 4.5p in dividends this year, which it subsequently aims to lift to 7p.
GRID earns revenues from companies for whom it provides on-site energy and from the grid to which it acts as a backup supplier. A European Court of Justice ruling in November prevented it – and other suppliers – from participating in the ‘capacity market’, a government scheme to ensure energy supply remains stable as the proportion of more volatile wind and solar power increases.
The ECJ ruled that the capacity market broke state-aid rules. GRID, whose portfolio is managed by Ben Guest at Gresham House Asset Management, believes the scheme, or one like it, will be eventually reinstated. If not, it says the ensuing increased volatility in intra-day electricity prices will enable the fund to earn more money trading energy and offset the lost revenue from the capacity market.
‘The board and the manager believe that Great Britain will experience an increasing need for energy storage systems as the proportion of total electricity supply from renewable sources grows. The UK’s exposure to renewable energy generation continues to increase despite the removal of subsidies to onshore wind and solar.
‘Development of offshore wind in particular is likely to take renewable generation to over 50% within two years, according to government forecasts, generating an even more volatile supply of electricity and power prices which underpins the opportunity for ESS.’
Corporate broker Cantor Fitzgerald is handling the placing which is expected to close on 24 May.
Japan pays dividends
Activist investor AVI Japan Opportunity is also looking to exploit interest in its portfolio of small Japanese companies whose stark undervaluation fund manager Joe Bauernfreund (pictured) believes could be unleased with a little encouragement.
Bauernfreund told Investment Trust Insider in a video interview last month that he was interested in exploiting the good start the shares had made with a new share issue.
Today, AJOT, which raised £80 million at its IPO in October, short of its £200 million target, confirmed it was looking to place new shares with investor, although it did not say how much.
Like GRID, AJOT will seek to issue the shares at a premium to ensure costs of the fund raise are met by the incoming investors. Until last month AJOT shares traded up to 9% above NAV, although that premium has moderated to 2% after its announcement earlier this month it was considering a new fund raise. Issued at 100p, the shares are up 0.25p to 104.75p today with NAV of 101.7p.
In the interview Bauernfreuend told us he was encouraged by a number of companies in the portfolio that had begun to respond to Japan’s growing shareholder culture by raising dividends as a way of using up the huge cash piles on their balance sheets.
‘Since the company's launch, there have been a number of positive corporate governance developments in Japan and the investment manager’s conviction that there is a significant amount of unlocked value in quality, over-capitalised Japanese companies has only strengthened and it continues to identify a pipeline of attractive opportunities in line with the company’s investment strategy,’ it said.
The placing is being handed by brokers Nplus1 Singer Advisory and Kepler Partners and closes on 10 May.