Outcome of KPMG Review & Release of December NAV

RNS Number : 2488I

SQN Asset Finance Income Fund Ltd

31 March 2020

 

31 March 2020

SQN Asset Finance Income Fund Limited

("the Company")

Outcome of the KPMG review of AD Plants valuation

Release of the NAV of the Ordinary Shares for 31^st December 2019

On 13^th February 2020 the Company announced that it had engaged KPMG Ireland ("KPMG") to undertake an independent valuation of six Anaerobic Digestion ("AD") plants ("the AD Plants") as at 31^st December 2019 including a review of the valuation model used for those AD assets.  The Board sought independent advice as a result of the wide range of valuations, which were notably lower than previously, presented to the Board by the Investment Managers for the 31^st December 2019 NAV.  KPMG have significant experience in the AD sector having been advisors in connection with the purchase and sale of a number of AD plants, M&A, refinancings and valuations.

Whilst the review was taking place, the Company was unable to calculate and release the NAVs for 31^st December 2019, 31^st January 2020 and 29^th February 2020 for the Ordinary Shares.  The NAVs for the C Shares for those dates were released as usual as the C Shares do not hold any AD assets.

The Board has now received the KPMG report.  KPMG provided a range of valuations of the AD Plants prepared on a Fair Value basis of between £64.76m and £73.26m ("the FV Range") as at 31^st December 2019.  This range is derived from a discounted cash flow model using expert input as well as observed market transactions.  The valuations are reflective of the operational capability and contractual positions of the AD Plants as at 31^st December 2019, taking account of prudent estimates of cash flow upside where KPMG believe that a willing investor would likely attribute value as part of a competitive acquisition process.  A detailed paper and va(D) luation model has been provided to the Company for each AD Plant.

KPMG has further stated that should a point value be required, as it is for the calculation of the NAV and for the production of the Company's Interim Financial Statements to 31^st December 2019, the mid-point of the FV Range could be considered appropriate ("the FV Mid-Point").  The Board has determined to use the FV Mid-Point and, accordingly, the Fair Value of the Company's investment in AD Plants is £55.33m, resulting in additional expected credit losses on the related credit investments of £73.71m, equivalent to 20.71p per Ordinary Share or 22.20% of the Ordinary Share NAV.  This has been calculated taking into account other lenders on three of the AD Plants, the outstanding debt held in the Company's books and the Company's existing IFRS9 Expected Credit Losses.

As a result, the unaudited, estimated NAV per Ordinary Share as at 31^st December 2019 was 72.57p, representing a decrease of 21.11p per Ordinary Share or 22.53% from 30^th November 2019.

The Investment Managers believe that there remain opportunities to create value in excess of the FV Range based on a number of factors that are not included in the KPMG Fair Value valuations.  These include measures that could add value to each AD Plant if certain enhancements were to be undertaken such as, amongst other things, private wire contracts, heat off-take contracts, digestate contract cost reductions, additional RHI income from heat recovery systems and recoveries from contractor guarantees for faulty work.  Based on these assumptions the valuation range is £97.09m to £108.99m.  Furthermore, there may be an opportunity to create value beyond this range, in particular if the AD Plants were sold as a portfolio of assets which might attract a valuation premium.

The Board believes that using the FV Mid-Point is the most appropriate value to use for the calculation of the Ordinary Shares NAV as there is no assurance that the improvements that might lead to value in excess of the FV Range can be achieved.

The Board has also determined that the FV Mid-Point remains appropriate for the calculation of the Ordinary Shares NAVs for 31^st January 2020 and 29^th February 2020 and the NAVs for those dates will be released shortly.

For further information please contact:

SQN Capital Management, LLC Jeremiah Silkowski   [e-mail]   Nicola Bird  [e-mail] Catherine Halford Riera  [e-mail]	01932 575 888
Winterflood Securities Limited	020 3100 0000
Neil Langford Chris Mills
Buchanan Charles Ryland Victoria Hayns Henry Wilson	020 7466 5000

 

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