The Fund will finance Renewable Energy & Energy Efficiency projects offering first mover advantage and a plethora of opportunities such as district heating and co-generation for communities of 15-50k residents, Public lighting, Energy Efficiency for Italian Industrial companies and possibly investments in hydroelectric plants.
The lending will be achieved by direct origination of Green-Bonds, which will be listed on the Italian stock exchange. The Green Bonds are fully amortising, senior secured and once the projects are operational, they also are eligible for Investment Grade rating.
When compared to corporate lending, the Fund’s financing structures have key benefits, including:
Tight control of project cash flows
Origination of fully amortising bonds, thus reducing risk through time.
With clear senior secured creditor status and control over major project contracts.
With the ability to place the risk with the party best able to manage it.
Single purpose or limited scope companies
With ring fencing.
Through management of construction risk. Greenfield projects are not usually rated, but can obtain investment grade rating post construction and once an operating track record is established.
The Fund is a 7 year life closed end vehicle but its underlying assets have a longer maturity, therefore we have envisaged an exit strategy for the entire portfolio.
We have analysed four viable exits:
Institutional investors are seeking high quality, reliable income streams as opposed to fixed income portfolios with increasing interest rate risk. Investors with an allocation to ‘Alternative Investments’ are generally reducing their exposure to hedge funds after years of underperformance and to many mature real estate markets and increasing their exposure to safer, lower volatility infrastructure investments.
Securitisation volumes have recovered following the credit crisis and more non-plain-vanilla securitisations are being sponsored. Green Bonds are increasing in volume; their social responsible characteristics and long dated tenors are attractive to investors. Diversified sector exposure, backed by a reliable long-term income stream, ensure a successful underwriting at exit.
Growth expectations for the Italian Green-Bond market are high due to the hindering of commercial bank lending by the recession and by strict regulatory capital requirements (Solvency II and Basel III). The listing on Borsa Italiana standardised the pricing mechanism of Green-Bonds and improved liquidity.
In 2013, Foresight Solar Fund Limited (FSFL) raised £150m at IPO. FSFL has since raised a further £634m under its Placing Programme. FSFL targets a c. 6% inflation-linked annual dividend. Foresight believes a similar listing could be achieved for the Green Bond Fund.