Monday, 23 March 2015

Danger that the Secured Energy Bonds debacle will cut confidence in sustainable energy bond market

Premium bonds are more secure, lottery tickets more likely to generate a return, so why did 973 investors put their money into Secured Energy Bonds?

Investing in sustainable energy bonds is a highly risky savings strategy, the market is unregulated, the Financial Conduct Authority takes no responsibility for anything that happens there and investors should be fully prepared to lose all their capital.

This is the sort of warning that should have been carried on Secured Energy Bonds when they were launched a couple of years ago.

The energy bonds were advertised in the financial press, offering 6.5% on cash invested for three years.

The investment looked good and secure. The company Secured Energy Bonds plc was a separate UK incorporated body, which would use the £7.5 million raised to buy solar panels to put on schools. The investors would receive their 6.5% return over three years in the main from the feed in tariff payments on energy generated.

All good so far, the investor’s money was safe because even if some problem arose with the company, the assets (ie the panels on the schools) would still be there raising revenue.

Investors, no doubt keen to do their bit for the environment and get some sort of return from their money, quickly provided the £7.5 million required for the bond.

All went well for the first months of the bond, interest was paid on the quarter, there was even an early bird payment for those who got in early.

This all changed in January, when the fourth interest payment was not made. The hazard warning lights came on. There was no response to emails sent to the company, the phone line was dead. A call to Capita, which dealt with the interest payments, confirmed that interest payments had been suspended.

A bit more digging round the internet revealed that the Australian parent company, CBD Energy, had gone into administration. But no worries surely the UK incorporated Secured Energy Bonds was separate – the assets must remain untouched – all £7.5 million of them.

I contacted the Financial Conduct Authority which effectively said nothing to do with us mate, try the trustee Independent Portfolio Managers.

IPM were the “security trustee” charged with overseeing investors interests. Initially, phone and email messages went unanswered before finally IPM confirmed that SEB had been put into administration. Grant Thornton have been appointed administrators. The investors remain in the dark, as to what is happening – other than be prepared to lose your money.

The loss for 973 plus investors has implications going far beyond the Secured Energy Bonds saga. The main concern for other players in the sustainable energy bond sector is that investors will be put off this unregulated market entirely. 

Trillion Fund, a crowd financing platform for renewable energy projects, sent out a press release following the initial news about SEB declaring: “Trillion Fund listed Secured Energy Bonds on our web directory in 2013, alongside other opportunities to lend to or invest in renewable energy projects, which referred interested lenders to Capita.

“Investment carries risks that you may lose your capital, and this is incredibly disappointing to those who backed the project. “Not all renewable energy investments are created equal. Some projects are more risky than others and Trillion strongly encourages investors to ensure they have a well diversified portfolio.

“We take great care to make sure potential investors understand all of the risks involved. For example, that projects that are yet to be developed are more risky than those that are operational.”

A recent advert from renewable energy investment company Abundance Generation declared: “Abundance - invest in renewable energy projects. Capital at risk.”

So there is clearly concern in the sector about the damage that the SEB episode is doing to the confidence of investors.

For the 900 plus investors in Secured Energy Bonds, such warnings are too late. They now need to wait to hear from Grant Thornton in Australia. 

In January, finance website This is Money quoted the administrators as saying: “During 2014, CBD utilised funds of Secured Energy Bonds plc, a UK subsidiary, which were segregated and should have only been used for the purposes outlined in the bond-raising prospectus, which precluded working capital funding of CBD.

“However, due to CBD’s cashflow difficulties $8.4m [AUD] was transferred to CBD over time, via various inter-company loans to fund outstanding creditor payments and working capital requirements.”

If this is the case, there will be many questions to answer.

The IPM will in particular have some explaining to do as to what they were actually doing to protect investor’s interests. What were they doing to monitor where the funds were going and whether they were actually being used to buy solar panels on schools in the UK?

The FCA should also be asking questions, as IPM – an FCA-regulated company - was supposed to ensure that investors’ interests were protected. The simple shrug of the shoulders approach really will not suffice.

The comments made that it was always a risky investment and that capital could be lost really does not wash. On paper this was not a risky investment, if the company concerned did what it said it intended to do with the money raised. The investment was not even as risky as buying shares, the investment should not go down – let alone disappear altogether.

There are many questions that need answering. The 900 plus investors want to know when they are going to get their money back. Platforms like Trillion and Abundance Generation should be as concerned for those investors as their own given that the way in which this is resolved will
have serious implications for the whole of the privately backed sustainable energy market.

* A creditors meeting for Secured Energy Bonds has been called by Grant Thornton for 1 April 2015

- also see "April D-day for investors in Secured Energy Bonds" - - 21/3/2015

No comments:

Post a Comment