Green Investment Trust Faces Major Losses as Pressure Mounts for Wind-Down

A prominent green investment vehicle, the SDCL Efficiency Income Trust, has announced a significant shift in strategy as it prepares to wind down operations. The company, which has raised over £1.1 billion from small investors, now faces potential losses exceeding 50% as its ambitious survival strategy has been abandoned in favour of a managed wind-down.

This decision comes after increased pressure from the activist hedge fund Saba Capital, which reportedly owns over 10% of the trust. Retail investors had initially been drawn to SEIT’s nine capital raisings from 2018 to 2022, attracted by the promise of decent returns from an array of energy-saving projects, which included the installation of solar panels on Tesco stores and the development of electric vehicle charging stations.

<pHowever, market conditions have since changed, with rising interest rates and scepticism regarding the valuations of many of its investments contributing to a sharp decline in share prices. Currently, the shares have plummeted to a 49% discount relative to net assets.

Tony Roper, chair of SEIT, stated that the board has engaged in intensive discussions with various shareholders, including wealth managers and retail investment platforms. Many investors expressed a clear preference for liquidity over the previously proposed run-on strategy. The board unanimously concluded that a managed wind-down is in the best interests of all shareholders.

Roper acknowledged the frustration and uncertainty caused by the fall in share price and expressed gratitude for the constructive dialogue with shareholders. The original plan aimed to convert the trust into a conventional operating company while retaining its stock market listing. However, the board recognised the execution risks associated with this option and opted for a more straightforward route.

Analysts from Barclays indicated that the involvement of activist investors has made a managed wind-down a more probable scenario. While this approach may provide a clearer pathway to value realisation, it does come with associated risks concerning asset disposal pricing. Recent asset sales have illustrated the challenges ahead, as the trust sold a portfolio for £105 million at a 9% discount to its book value.

As market conditions continue to evolve, SEIT’s decision marks a pivotal moment in its history. Investors who initially paid £1 or more for shares face significant capital losses, with current share prices standing at 45p, reflecting a potential £500 million loss.