Shares in FTSE 250 investment trust Foresight Solar (FSFL) have dropped after it revealed plans to issue new shares in order to pay down some of its debt.
The trust’s share price is down 3.5% to 120p, still a more than 9% premium to its most recently published net asset value (NAV) of 109p, as it seeks to issue up to 54.98m new shares.
As at 31 August, Foresight Solar had £509.9m of debt, with long-term debt of £404.9m and a drawn balance on two revolving credit facilities, which are essentially overdrafts for businesses, of £105m.
Managers of investment trusts typically use debt to increase the level of holdings, rather than having to sell some the assets they’d rather keep, in order to fund future purchases.
This can help boost returns and is called gearing.
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But Foresight Solar is looking to reduce its level of gearing, with the money it gets from issuing new shares to be used to repaying some of the drawn balance from its revolving credit facilities, which have sizeable interest rates.
By reducing its gearing, Foresight said it will have additional financial flexibility to pursue new investment opportunities.
The price for the new shares has not yet been disclosed and is set to be determined by a book building process, whereby the trust appoints a broker to use their contacts to drum up demand from investors they know, which are usually financial institutions, corporations and high net worth individuals.
The issue price for the shares is expected to be above the latest NAV of 109p, meaning that at a minimum the trust stands to raise at least £54.9m.
Analysts at Numis said it is ‘not surprising’ the trust is seeking to raise money, given the drawn balance on its overdraft facilities and the big premium to NAV, which makes it a good time for the trust to raise capital.
The new shares will be entitled to the dividend of 1.69p for the quarter to 30 June, with an ex-dividend date of 24 October.
The placing closes on 9 October with new shares admitted to trade on 14 October.
