SQN Asset Finance Income (SQN), the high-yielding investment company hit by the bankruptcy of US solar cell manufacturer Suniva, is postponing the conversion of its C-shares 10 months after it issued them in a £180 million fund raising.
SQN would normally have expected to have invested the new money by now and be in a position to convert the C-shares into the ordinary share class it issued at its launch three years ago.
However, deployment of the money into new asset leasing deals has been delayed by corporate uncertainty over Brexit and the unexpected general election result, which left the Conservatives clinging on to power with a much reduced majority, the company said.
As a result just £12 million of transactions had been approved at the end of September, with an additional £53 million allocated to potential investments and a further pipeline of £96 million.
Another obstacle is that the C-share pool does not have exposure to Suniva and so its investors will want to wait to see if the company survives before merging their assets with the ordinary shares.
The company said it would hold a vote after its annual general meeting to decide on whether to extend the conversion date until Suniva's fate became clear.
The timing is possibly awkward as SQN is also due to invite shareholders to the first of its triennial continuation votes this year.
Hopes were raised last week that Suniva, which represents $29.9 million (£24.3 million) or nearly 7% of the assets owned by SQN’s ordinary shareholders, could resume profitable operations next year. This was after the US International Trade Commission recommended the Trump administration slap punitive tariffs on cheap solar panel imports from China and Taiwan. Suniva had complained these had pushed it under.
SQN’s board had previously decided not to reduce the valuation of the SQN position. ‘This was based on the investment managers’ high degree of confidence that the investment, along with any interest due, will be fully recoverable,’ chairman Peer Niven said in the company’s annual results today.
Niven said Theresa May’s decision to call a snap election in April had intensified the existing Brexit confusion. ‘Rather than assuaging those concerns, the surprise general election, and its subsequent result, threw the market into a prolonged state of hesitation which has still not fully subsided,’ he explained.
The net result has been more competition for projects and keener pricing. However, he said the fund managers had reported that transaction volume was starting to pick up.
Monthly dividends had also continued to be paid at the annual rate of 7.25p, despite the suspension of income from Suniva, he said.
SQN shares yield 7.3%. Over three years, SQN’s shares have delivered a total return of 11.7%, most of it from income. Following the ITC ruling the shares have regained their premium rating, trading at 100.6p, just over 1% over their estimated net asset value of 98.65p per share, according to Morningstar.