NextEnergy Solar (NESF ) has sold a 60-megawatt solar project in Hampshire to one of its sister funds for £15.2m, representing a 100% premium, which will be used to pay back some of its revolving credit facility.

The £513m investment company sold the ready-to-build Hatherden project, the first of the five subsidy-free assets it said would go under the hammer in April, to the NextPower UK ESG fund, a private fund also managed by NextEnergy Capital. 

The proceeds will be put towards reducing the 10%-yielder’s £205m short-term debt levels, of which £27.7m remains undrawn, while £4.8m in cash is also available. Debt levels are equivalent to 46% of gross asset value, while outstanding commitments total £27m.

Investors were pleased with the deal as shares in the trust gained 1.1% to 86p on Wednesday morning.

Liberum’s Shonil Chande said that while the uplifts were attractive, including the 57% investment return, the market would probably place more weight on non-related party data points. 

However, interim results published today stressed there were no exclusivity arrangements in place between NESF and any member of the NextEnergy Group in relation to the deal or future disposals. 

‘We haven’t just taken a ready to build solar project and thrown it over the fence. We did a whole load of value creation before taking it to the open market, where we ran an extremely deep and robust process using the normal information barriers between transaction teams,’ chief operating officer Ross Grier (pictured) told Citywire.  

Referring to the fact only one asset has been sold since unveiling the capital recycling programme eight months ago, Grier stressed it was an extremely difficult market environment not only to sell assets at the right price, but also in terms of executing a transaction.

Stifel’s Iain Scouller was concerned that the high level of leverage and slow pace of asset sales would lead to a widening in the discount and downgrade his recommendation to ‘negative’.

Interim results

Over the half year to October, underlying returns including dividends fell 1.8% to 108.3p per share, while the shares slumped 14.3%.

The fall was driven by an increase in the discount rate for unlevered operating UK solar assets by 0.75% to 7.50%, reflecting rising UK government bond yields. 

Over the period, NESF paid out a dividend of 4.18p, which was 1.8 times covered by cash. The company is on track for the full-year payout of 8.35p, an 11% increase on last year.

The shares currently trade at a 20% discount to the latest net asset value, putting it above the 12-month average threshold of 10% at which NESF will be forced to offer a continuation vote at its annual general meeting in August 2024.

Grier said the board had not been buying back shares as it focused on its capital recycling programme and paying down the RCF.

‘Any investment decision we make beyond that will be about what is the right accretive transaction, from buybacks to bringing assets online. We are prepared to do buybacks and are thinking,’ he said, adding that discontinuing the trust would not be in shareholders’ best interests.