EGM Requisition at Leaf Clean Energy

Leaf Clean Energy (LEAF) is an investment trust that specialises in “renewable energy and sustainable technology”. It raised $386 million in 2007 but subsequently bought back some of its shares giving an effective net figure of $307m. At June 2013, net assets were reported as $183m, i.e. substantial losses have been made. At the time of writing the market cap is considerably below the net asset figure (near 47% discount) which may be the market’s view on the accuracy of the valuation.

Crystal Amber, an investment company, who hold 10% of the stock, have requisitioned an EGM  to replace the Chairman and Chief Executive with two new directors.

Crystal Amber say they have attempted to engage constructively with the Board of Leaf to explore ways to enhance shareholder value, but it seems they have been unsuccessful in doing so. Their three main concerns are:

1. The visibility of the underlying value of Leaf’s investments, which seems to be code for questioning whether they are really worth what they are valued at. Some investments are value on the basis of forecast future cash flow forecasts and no information on revenues or earnings is provided to investors.

2. The large share price discount.

3. The current scale of running costs in the company (total administrative costs last year were $5.2m, i.e. 2.8% of assets).

On the latter point, Crystal Amber point out that Brian Keogh, the Chief Executive, earned $750,000 in the year to June 2013 and Peter Tom, non-executive Chairman earned $200,000. The figures for 2012 were the same. Only those two directors sit on the Remuneration Committee.

Incidentally Peter Tom is also Executive Chairman of Breedon Aggregates where he earned £447,000 in 2012.

Crystal Amber have suggested that the company be put into an “orderly run off mode” with a three month handover period for the Chief Executive. You can see more about their claims and the requisition here: http://www.crystalamber.com/_library/_downloads/140306-LeafRequisition.pdf

Comment: In my experience green investments are often sold to green investors. In other words sold to investors more interested in the vision than the practicality of obtaining a financial return (and that’s true even taking into account that there are some heavyweight institutional investors in this company). The fact that Leaf Clean Energy is registered in the Cayman Islands would be enough to put me off. But given the current position of the company it would certainly appear that steps should be taken to change the management and reduce the costs in this investment company. Whether a wind-up would realise much value for investors is however questionable and could be an exceedingly difficult process given the nature and stage of the investments held. But perhaps better to start now rather than later.

Roger Lawson

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