By Leon Louw founder and editor of WhyAfrica
01 May 2021 – With renewable energy becoming a major area of interest in Africa, it is exciting that the first African yieldco company focused on renewable energy listed on the market last week. Revego Africa Energy made its debut on the Johannesburg Stock Exchange (JSE) on the 29th of April 2021 and although its performance did not shoot the lights out, Revego Africa Energy is WhyAfrica’s Pick of the Week
For those of you not familiar with the term a yieldco is a company that generates cash from a group of assets, in this case renewable energy project in Africa, and then pays it back to investors as dividends. The appeal for investors is in the name: yield. Having a public company with supposedly secure cash flows delivering 4% or 5% returns in the shape of dividends is attractive in a low-interest-rate environment. Revego Africa Energy is the first yieldco to go public in South Africa and hopes to produce predictable cash flow, primarily through long term contracts.
According to Reyburn Hendricks, CEO at Revego Africa Energy, the idea behind Revego arose from identifying a gap in the sector, due to the difference in requirements between long term investors and those who initiate and develop renewable assets.
“These developers are not naturally long-term shareholders, but rather want to take their money from one deal and put it into further deals,” says Mike Meeser, Chief Investment Officer at Revego Fund Managers. The Revego Africa Energy Fund therefore plays a role in providing a means for developers to exit, while giving long-term investors access to this important asset class.
Meeser adds that the Fund also fulfils a role for developers and long-term investors alike, by ensuring compliance with South African ownership and black economic empowerment codes.
“The fund qualifies as a black-owned fund under Department of Trade and Industry guidelines, with the fund manager being majority black-owned,” says Meeser, “That’s why we think it’s a great opportunity in the market for investors and developers.”
Hendricks explains that Revego Africa Energy will be the entity listed on the mainboard of JSE, which in turn will hold a 99.99% stake, as a limited partner, in the Fund. “The Fund will hold the equity stakes in the various renewable energy investments, as selected by the fund manager. This is a direct and indirect investment that both institutional and retail investors will be able to make in the sector,” says Hendricks.
Revego Fund Managers in turn manages the Fund, including administration, the sourcing investments, due diligence, and the ongoing management of the different assets.
Cornerstone shareholders in the entity to be listed on an equal basis are Investec Bank and UK Climate Investments, and the latter has the UK government and Macquarie as stakeholders, concentrating on clean energy in India and Africa. A third shareholder is the Eskom Pension and Provident Fund.
Hendricks explains that there are a number of governance processes in place. “The fund manager has a deep, experienced and independent investment committee, so any recommendations which the fund manager makes, need to pass through and be approved by the investment committee. There is also an advisory board made up of the independent directors of Revego, who oversee the relationship between the fund manager and the fund, and particularly any potential conflicts of interest,” he explains.
At the moment the initial portfolio is all based in South Africa. But over time as the other countries in sub-Saharan Africa also develop their own renewable programmes and as those projects go through their life cycle, they will become investment candidates. “We expect to see some diversification across currency as well, because typically, sub-Saharan (ex-South Africa) government programmes are typically US dollar-denominated,” says Hendricks.
“There would be some diversification across some of the regulatory aspects. Typically, the sub-Saharan government programmes include a foreign development finance institution who gives credit enhancement into the scheme.”
Hendricks says he expects to see some exciting developments in South Africa. “The Integrated Resource Plan (IRP) calls for approximately 20,000 megawatts of renewables, either on the grid, or contracted for by 2030. That is a large multiple relative to the existing six thousand megawatts, so what’s going to be needed is a lot of capital from the private sector, particularly on the equity side in order to bring those 20,000 megawatts onto the grid,” he explains.
“A vehicle such as Revego will assist in the development of a future rounds of the IRP and it and by doing so it will ‘crowd in’ the institutional investors who are looking to get direct and indirect exposure to the sector,” he expands further.
Revego will aim to fulfil the needs of pension funds and individual investors looking to get reliable returns. “Over the life of the investments, the cash flow will be in the form of dividends. The intention is to pass through almost all of distributions to shareholders,” he says.
Leon Louw is the founder and editor of WhyAfrica. He specialises in natural resources and African affairs.
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