Miscellaneous
Downing THREE VCT plc
LEI: 2138008V2JDU2K6ZHF80
Unaudited Net Asset Values
21 February 2020
Downing THREE VCT plc announces that its unaudited Net Asset Values as at 31 December 2019 are as follows:
| Unaudited | Unaudited | |
| 31-Dec-19 | 30-Sept-19 | |
| F Share class | ||
| Net asset value per ‘F’ Share | 26.3p | 31.4p |
| Cumulative distributions per ‘F’ Share | 72.0p | 67.0p |
| Total return per ‘F’ Share | 98.3p | 98.4p |
| ‘H’ Share class | ||
| Net asset value per ‘H’ Share | 33.2p | 43.5p |
| Cumulative distributions per ‘H’ Share | 35.0p | 30.0p |
| Total return per ‘H’ Share | 68.2p | 73.5p |
| ‘J’ Share pool | ||
| Net asset value per ‘J’ Share | 50.0p | 63.4p |
| Cumulative distributions per ‘J’ Share | 5.0p | 2.5p |
| Total return per ‘J’ Share | 55.0p | 65.9p |
Provisions have been made against the value of several investments in the H and J Share pools. The impact of the valuation movements on NAV since 30 September 2019 are summarised as follows:
| H Share Pool | J Share Pool | |
| Movement Pence per share | Movement Pence per share | |
| Jito Trading Limited | - | (4.3) |
| SF Renewables (Solar) Limited | (0.3) | (0.4) |
| Rockhopper Renewables Limited | (1.4) | (1.7) |
| Indigo Generation Limited | (1.6) | (2.0) |
| Ironhide Generation Limited | (1.6) | (2.0) |
| Other/Running Costs | (0.4) | (0.5) |
| (5.3) | (10.9) |
The Investment Manager, Downing LLP, has provided comments on the investments with significant movements in value as follows:
Jito Trading Limited
Jito Trading owns a wood pellet manufacturing plant in Weitra, Austria. Following several issues with this plant it has been concluded that it is appropriate to seek a buyer to acquire the company. An advisor has been appointed to sell the business, however a sale based on the current offers would not recover any value for equity shareholders. An improved offer is currently being sought in order to seek some recovery in value.
Indian Solar Companies
SF Renewables (Solar) Limited, Rockhopper Renewables Limited, Indigo Generation Limited and Ironhide Generation Limited each own ground mounted solar farms in India in differing stages of operations. A number of market wide factors have impacted the valuations of solar farms in the areas our investments are located. The main issues have resulted from state political activity, and the significant reduction in power prices available through the private Power Purchase Agreement (“PPA”) market (which in turn is heavily influenced by state policy). Current PPA terms are low but it is not unreasonable to assume that there are prospects for a return to more normal market pricing in due course. However, there can be no certainty as to if, and when, this may happen and it is outside our control. In addition, currency movements have impacted investments. Based on the above, we have made provisions against all Indian Solar investments. Any project specific matters are noted in the detailed commentary below.
SF Renewables (Solar) Limited
SF Renewables operates a ground-mounted solar farm in Southern India which was completed and connected to the grid in March 2017. It has entered into a framework agreement with high quality offtakers (including CocaCola) and is currently selling its power at a fixed rate for the medium term. The fixed price periods are coming up for renewal at various stages over the next 24 months. As a result of a market wide downward trend on solar PPA pricing, management are forecasting a reduction in the pricing on renewal compared to the original investment case. There are also some concerns over the regulatory environment which has some downward pressure on valuation. The value of the equity in the company has been reduced from £1.06 to £0.90 per share.
Rockhopper Renewables Limited
Rockhopper Renewables operates a single ground-mounted solar farm in Telangana which connected to the grid in December 2017. Whilst meeting the criteria for the relevant permits to enter into private PPAs the state authorities have delayed the grant of these permits unlawfully. The company had reached agreement with a number of corporate offtakers under similar arrangements to SF Renewables but cannot yet sell electricity directly to corporate customers until the permit is granted. As a result of the uncertainty over both whether a permit will be granted and also whether the PPA pricing in the original investment case can now be achieved, the value of the equity has been reduced from £0.87 to £0.50 per share.
Indigo Generation Limited and Ironhide Generation Limited
Indigo Generation and Ironhide Generation are both developing solar farms on adjacent land in Maharashtra, India. Construction of the first phase of each site is now complete and grid connections are secured. The initial phase can be brought into operation as the second phase is being constructed. The sites will operate independently and seek to maintain their own private PPAs. The private PPA market in Maharashtra has been particularly affected by reductions in long term PPA terms, particularly with respect to low inflation indices in an economy where inflation is running at very high levels. As a result, management are forecasting a reduction in the pricing on energisation compared to the original investment case.
There are also other factors which also weigh on valuation, but which have a less material impact. For example, the second phase of the build programme is behind schedule due to some delays in the transfer of the land. The value of the equity in both companies has been reduced from £0.70 to £0.35 per share.
