Greencoat UK Wind PLC: Announcement of intention to raise a minimum £205 million and list on the Main Market of the London Stock Exchange

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This announcement is an advertisement and not a prospectus. Investors should not purchase or subscribe for any transferable securities referred to in this announcement except on the basis of information in the prospectus (the "Prospectus") to be published by Greencoat UK Wind PLC in due course in connection with the initial public offering and the admission of its ordinary shares (the "Ordinary Shares") to the premium segment of the Official List of the UK Listing Authority (the "Official List") and to trading on London Stock Exchange plc's main market for listed securities (the "London Stock Exchange"). A copy of the Prospectus will, following publication, be available from this website. This announcement is not an offer to sell, or a solicitation of an offer to acquire, securities in the United States or in any other jurisdiction. Neither this announcement nor any part of it shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever.

Greencoat UK Wind PLC: Announcement of intention to raise a minimum £205 million and list on the Main Market of the London Stock Exchange

Greencoat UK Wind PLC ("Greencoat UK Wind" or the "Company") today announces its intention to launch an initial public offering. The Company is seeking to raise £205 million by means of Deeds of Subscription, a Placing and an Offer for Subscription of Ordinary Shares, with the option to increase the size of the Issue by up to £55 million. The Company will be fully invested from launch as it has signed agreements to acquire a seed portfolio of operational UK wind farms from two major utilities: RWE and SSE. 

Application will be made to the UK Listing Authority for all of the Ordinary Shares to be admitted to the Official List (premium listing) and to the London Stock Exchange for all such Ordinary Shares to be admitted to trading on the London Stock Exchange's main market for listed securities. The Company is structured as a closed-ended infrastructure investment company with an indefinite life.

Key Highlights

• Exposure to UK wind generation through a premium listed vehicle - the first of its kind:On launch, Greencoat UK Wind will be fully invested solely in operating UK wind farms which will produce income immediately
• Attractive and inflating dividend:Greencoat UK Wind will aim to provide shareholders with a sustainable income stream through an initial annual 6p1dividend (pro-rated in 2013 for the period between Admission and 31 December 2013) on the issue price of 100p. Given the nature of the Company's income streams, the Board intends to increase the dividend in line with Retail Price Index (RPI) inflation
• Capital preservation:Greencoat UK Wind will aim to preserve capital on a real basis by reinvesting excess cashflow in additional operating UK wind farms and through prudent use of portfolio leverage
• Predictable and supportive regulation:the Company's portfolio benefits fromstrong UK Government regulatory support for operating renewable energy assets, including 'grandfathering' of the support regime for existing assets through the recent Electricity Market Reform process
• Downside protection: the nature of the Company's revenues, approximately half of which are derived from "green benefits", provides sufficient dividend cover to protect against key sensitivities
• Upside from power price exposure: in maintaining a controlled exposure to the power price, the Company would benefit from future power prices increases above market expectations
• Experienced management team:the Company will be managed by an experienced team of senior executives from GreencoatCapital LLP ("Greencoat Capital"), the cleantech and renewables focused investment management firm, and overseen by a strong and experienced independent board
• Cornerstone investors:The Department for Business, Innovation and Skills has committed to subscribe for 50 million Ordinary Shares. SSE is contributing part of the seed portfolio and has committed to subscribe for up to 43 million Ordinary Shares (subject to priority scale back to not less than 10 million Ordinary Shares).

Commenting on the announcement, Stephen Lilley, Partner of Greencoat Capital, said: 

"Operating wind farms should make attractive investment assets, particularly for investors seeking long-term, predictable returns. Greencoat UK Wind represents the first opportunity to invest into a listed infrastructure fund, fully invested in operating UK wind farms."

Tim Ingram, Non-Executive Chairman, Greencoat UK Wind said:

With an anticipated initial dividend yield of 6%, limited planned gearing, and investment only in proven operating wind farms, Greencoat UK Wind offers a very attractive opportunity for investors seeking a sustainable and growing return on their investment."

Summary

Greencoat UK Wind PLC, a closed-ended infrastructure investment company with an indefinite life, today announces its intention to launch an initial public offering. The Company is seeking to raise £205 million by means of Deeds of Subscription, a Placing and Offer for Subscription of Ordinary Shares, with the option to increase the size of the Issue by up to £55 million. The Company will be fully invested (taking account of working capital requirements) from launch, as it has signed agreements to acquire a seed portfolio of operational UK wind farms from two major utilities: RWE and SSE.

Application will be made to the UK Listing Authority for all of the Ordinary Shares to be admitted to the Official List (premium listing) and to the London Stock Exchange for all such Ordinary Shares to be admitted to trading on the London Stock Exchange's main market for listed securities. It is expected that such admission will become effective, and that dealings in the Ordinary Shares will commence, in March 2013 and that the Prospectus is expected to be published in the week commencing 18 February 2013.

Investment Objective and Target Returns

Over a long-term horizon, the Company's aim is to provide investors with a 6p dividend per Ordinary Share that increases in line with inflation while preserving the capital value of its investment portfolio on a real basis through reinvestment of excess cashflow and the prudent use of portfolio leverage.

The Company intends to target returns to investors equivalent to an IRR net of fees and expenses of 8% to 9%. The Company will seek to enhance these returns through active management of the wind farms.  The Company will look to grow the Company's investment portfolio through the acquisition of further investments in operating UK wind farms.  Excess cashflow is likely to be reinvested by paying-down any outstanding acquisition debt.

The Company intends to pay an initial 6p dividend per Ordinary Share (pro-rated in 2013 for the period between Admission and 31 December 2013) on the issue price of 100p. Given the nature of the Company's income streams, the Board intends to increase the dividend in line with Retail Prices Index inflation and expects to pay an adjusted pro rata interim dividend in August 2013 for the period commencing on Admission and ending on 30 June 2013.

Investment Opportunity

The Directors believe that an investment in the Company offers the following attractive characteristics:

Strong regulatory support and favourable wind climate

A combination of the UK Government's strong regulatory support for renewable energy and the UK's favourable wind climate should enable the Company to provide investors with an attractive financial return from a portfolio of operational wind energy generation assets in the UK.

Attractive seed portfolio

The Company has signed agreements to acquire an investment in a 126.5MW (net capacity) seed portfolio of six wind farms (with no external project debt on acquisition) located in the UK. This seed portfolio is currently owned and operated (and will continue to be operated) by experienced industry players RWE and SSE.

Controlled exposure to power prices

Approximately half of the Company's revenues are expected to be derived from "green benefits", the payments (including Renewables Obligation Certificates) to which the Company's portfolio is entitled for generating rewewable energy. The Directors consider that this provides sufficient revenue stability to allow the Company to retain long-term exposure to the expected rise in the wholesale electricity price.

Inflation linkage

The express indexation of that portion of the wind farm revenues derived from green benefits and the degree of inflation linkage of the wholesale electricity price and of operating costs provide the Company with cash flows which should be correlated with inflation, in the medium term.

Potential for future acquisitions

The UK has a legally binding obligation to ensure that 15% of primary energy use is derived from renewable sources by 2020. The Board considers that the utility owners and developers of operating UK wind farms will seek to attract new and long-term focused capital into the sector, either through outright sales of, or co-investments into, operating wind farm assets. This should allow the current owners of such assets to reinvest the capital into their existing development programmes. Such sales should provide opportunities for the Company to enlarge its portfolio by making further investments. 

• The Company is well-placed to benefit from this development because:
• The Company intends to be a long term owner of operating assets;
• The Company does not need long-term fixed price power purchase agreements (PPAs) as it wants to retain controlled exposure to power prices. This is attractive to the utility sellers who do not like the negative rating implications of long-term PPAs associated with project finance used by many other potential buyers; and
• The Company should be an attractive financial co-investment partner for these utility owners as they generally, and similarly, do not finance wind farms using secured project finance debt.

Independent Board and Experienced Investment Manager

The Board is comprised of individuals from relevant and complementary backgrounds, offering experience in the investment management of listed funds, as well as in the energy sector both from a public policy and a commercial perspective.

The Company has appointed Greencoat Capital, which has an experienced management team in the cleantech and renewable infrastructure sectors, as its Investment Manager. 

The Seed Portfolio

The Company has signed agreements to acquire a seed portfolio of interests in six wind farms comprising a net capacity of 126.5 MW. All of these assets are onshore except for Rhyl Flats.

This is structured as agreements to acquire interests in four wind farms, totalling a net capacity of 102 MW, should the Company raise £205 million: 50% of Braes of Doune, 25% of Little Cheyne Court, 100% of Tappaghan and 24.95% of Rhyl Flats. The UK Green Investment Bank is also acquiring a 24.95% interest in Rhyl Flats. These agreements are subject to Admission and certain other conditions. 

As part of these agreements, the Company has also agreed separately exercisable call options (exercisable within 60 days) to acquire further interests in wind farms comprising an additional net capacity of 24.5 MW: an additional 16% interest in Little Cheyne Court and 100% interests in Bin Mountain and Carcant wind farms. These options will be exercised at Admission if the Company raises £260 million under the Issue. If the Issue is less than £260 million, it is intended that the Company will document and sign a debt facility to allow it to exercise the options within the time limit.

The day-to-day operations of the wind farm assets in the seed portfolio will continue to be performed by RWE and SSE respectively.

Investment Manager

The Company has appointed Greencoat Capital LLP (an experienced investment firm in the renewable energy sector and which is regulated in the UK by the FSA) as Investment Manager. In such capacity it will act as Investment Manager to the Company within the strategic guidelines set out in the investment policy and subject to the overall supervision (including approving acquisitions) of the Board.

Stephen Lilley and Laurence Fumagalli will lead the Investment Manager's team managing the Company's investments, including the provision of investment advisory and management services relating to acquisitions and the ongoing management of the assets. The asset management role encompasses the placing and managing of operational contracts, management of operational risks, advising the Board on the management of power price exposure and preparation of reports for the Board. In addition, the Investment Manager will identify asset and portfolio efficiencies.

The Board

The Company has a strong Board of independent non-executive directors from relevant and complementary backgrounds, offering experience in the investment management of listed funds, as well as in the energy sector both from a public policy and a commercial perspective. The Board will be chaired by Tim Ingram, former chief executive of Caledonia Investments from 2002 until 2010 and will also comprise Shonaid Jemmett-Page, former KPMG partner Financial Services, and William Rickett, former Director General for the Department of Energy & Climate Change. The Company intends to appoint a fourth director to the Board post-Admission.

Cornerstone Investors

The Department for Business, Innovation and Skills has committed to subscribe for 50 million Ordinary Shares pursuant to a deed of subscription with the Company, conditional on Admission.

SSE has committed to subscribe for up to 43 million Ordinary Shares (subject to priority scale back to not less than 10 million Ordinary Shares) pursuant to a deed of subscription with the Company, conditional on Admission.

In addition, Directors and individuals connected with the Investment Manager have confirmed that they intend to apply for over 0.5 million of Ordinary Shares in the Issue.

Each of the cornerstone investors, Directors and individuals connected with the Investment Manager will be subject to a lock-up restriction of one year. A summary of these arrangements will be provided in the Prospectus.

Investment Policy

The Company's investment policy includes, inter alia, the following:

The Company will invest in a portfolio of wind farm projects predominantly with a capacity of over 10 MW. The substantial majority of the portfolio will be operating UK wind farm projects.

The Company will invest in both onshore and offshore wind farms with the amount invested in offshore wind farms being capped at 40% of the Gross Asset Value at acquisition. The Directors will ensure that the Company will only invest in an offshore wind farm where a utility company retains an equity interest for a lock-up period.

The Company will seek to acquire 100 per cent., majority or minority interests in individual wind farms.  These will usually be held through Special Purpose Vehicles (SPVs) which hold underlying wind farms. When investing in less than 100 per cent. of the equity share capital of a wind farm SPV, the Company will secure its shareholder rights through shareholders' agreements and other transaction documents.

It is the Company's intention that when any new acquisition is made, no wind farm project acquired will have an acquisition price greater than 25 per cent. of the Gross Asset Value of the Group immediately post-acquisition (and in no circumstances will a new acquisition exceed a maximum limit of 30 per cent. of the Gross Asset Value of the Group immediately post-acquisition).

The Company intends to make investments in a wide geographical spread of projects that are situated throughout the UK and its offshore renewable energy zone.

The Company will retain exposure to UK power prices by entering into PPAs that avoid fixing price of power sold over the long term.  The Company may enter into PPAs or hedging contracts that fix the price of electricity sold for short periods of time.

The Company intends to make prudent use of portfolio level leverage to finance the acquisition of investments and to preserve capital on a real basis. The Company expects that the total of short-term acquisition financing and long-term debt will be between zero and 40 per cent. of Gross Asset Value of the Group at any time, with average total debt being approximately 30 per cent. in the longer term.  There will be a third party borrowing limit of 40 per cent. of Gross Asset Value calculated immediately after the borrowing has been drawn down.

The Company will not employ staff, and will engage experienced third parties to operate the wind farms in which it owns interests.

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Notes

[1] These are only targets and not profit forecasts. There can be no assurance that these targets can or will be met and it should not be seen as an indication of the Company's expected or actual results or returns.  Accordingly investors should not place any reliance on these targets in deciding whether to invest in Ordinary Shares nor should they assume that the Company will make any distributions at all.

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Definitions

SSE Scottish & Southern Energy PLC or any subsidiary as the context requires

RWE RWE AG or any subsidiary as the context requires

Group the Company, Greencoat UK Wind 1 LLP and their subsidiaries from time to time or any one or more of

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