The pain for backers of a green energy investment trust has deepened after the one-time stock market favourite axed its dividend and pressed ahead with plans to wind itself down.
Shares in SDCL Efficiency Income Trust fell by 11½p, or 25 per cent, to a record low of 34½p on Tuesday after the trust said it would not pay a fourth interim dividend for the last financial year and would suspend future cash distributions.
The move was disclosed alongside the trust’s blueprint for liquidating itself. It warned that it would concentrate on cutting debt and “preserving value” before returning any further cash to investors, in a wind-down that could run for years.
It is a further blow to the green vehicle’s beleaguered backers, who are already sitting on heavy losses and now face wiping out as much as half their money. It also comes after the trust fell into the sights of Saba Capital, the American hedge fund that has been shaking up the usually sleepy world of investment trusts. For readers weighing up the sector, our explainer on how investment trusts have changed the face of UK finance sets out how these vehicles are meant to work, and where the risks lie.
Saba has campaigned aggressively at a string of underperforming trusts for strategy changes and board overhauls since late 2024. With SDCL Efficiency Income Trust, known as Seit, the New York-based fund is understood to have been among the shareholders that opposed an alternative proposal under which the company would have carried on in a different guise. According to the Association of Investment Companies, the industry body, Saba has built positions across dozens of London-listed trusts, pressing boards to hand cash back to shareholders.
The decision to shut up shop is a spectacular reversal of fortune. Seit was once popular with institutional and private investors alike, tapping them for almost £1.2 billion across ten fundraising rounds between 2018 and 2022, including its original listing on the London Stock Exchange eight years ago.
It used the proceeds to assemble a portfolio of environmentally friendly investments, spanning industrial rooftop solar panel systems, LED lighting used in poultry farms and electric vehicle charging stations.
Its share sales were sometimes oversubscribed. Its final placing in September 2022, which raised a bigger than expected £135 million, was priced at 114p a share, more than three times Tuesday’s closing level.
Since then, Seit’s stock has slumped under the weight of higher interest rates and falling valuations for its assets, leaving the shares trading at a yawning discount to net asset value. The trust was valued at less than £400 million by the stock market on Tuesday night. The episode is a reminder of how quickly sentiment can turn, even after a spell when interest rate cuts looked set to revive appetite for green energy investment trusts.
The independent board, chaired by Tony Roper, and the manager, Sustainable Development Capital, had floated the idea of reviving the trust’s fortunes by converting it from a trust into a conventional operating company.
After weighing up feedback, however, the board concluded the plan lacked sufficient support. Saba, which is run by Boaz Weinstein and now holds a 20 per cent stake in Seit, is understood to have been among several investors against it.
The trust said in April that “a significant number of shareholders expressed a clear preference for liquidity” and that it would instead draw up wind-down proposals. It said on Tuesday that the plan, if approved by shareholders at a meeting on 10 July, would see Seit stop making new investments beyond follow-on capital for assets it already owns.
“The board believes that a sale of the entire portfolio, whether to a single purchaser or a small number of purchasers, would likely be the most efficient means of realising value for shareholders,” the trust said. “If a portfolio sale cannot be achieved on acceptable terms, the company will pursue asset-by-asset or grouped disposals.”
Seit warned that the whole process “could take a number of years to complete” and that cutting its borrowings would take priority. Its gearing stood at 71.9 per cent of net asset value at the end of September, above the 65 per cent limit set in its investment policy.
The trust has borrowed about £190 million under a revolving credit facility, and said that only once this had been “significantly reduced” would the board “reconsider its position on paying interim dividends if circumstances allow”.
The retreat caps a torrid 18 months for the closed-ended sector, much of it driven by Saba. The fund recently agreed a three-year truce covering several London-listed funds after a deal over the Herald Investment Trust, as reported by CNBC, though Seit’s collapse shows the pressure on weaker trusts has not let up.
Investors tempted by bargain-basement discounts elsewhere would do well to revisit the basics of how to choose an investment trust company before catching a falling knife.
Saba did not comment.
