At Worldwise Investor we hope that this begins a trend in the market which others can follow, however, we urge caution. Investors need to be fully aware of the terms on offer and the risks associated with this investment.
"Our concern," says Mark Hoskin, Managing Partner of Holden & Partners, "is that the contract on offer from Ecotricity leaves ecobond investors with little representation, or protection. We would like those who follow King of Shaves, Hotel Chocolat and Ecotricity in these direct bond offers to think more about the rights they give to investors, in particular the right to sell their interest to a third party. Ecotricity Group Ltd have not set up their offer terms to disadvantage investors, but to take advantage of the current regulatory rule book which significantly reduces the cost of raising money. Thus current regulation is driving a worse deal for investors. In our view the restrictions placed on investors as a result is setting a worrying trend, which could if one of these deals turns sour, damage the reputation of the financial services industry. We would like to see a small change in legislation to help improve the situation for both company and investor."
Ecotricity is a very successful business owned by one man, Dale Vince. Dale Vince and his wife Kate are the only two people classified by Companies House as Directors on the Ecotricity Group Ltd. Although the management team in the offer document have a wide range of experience, investors need to be wary that this is not a public limited company with all the protections that this affords.
1). On 10th August 2010, prior to the launch of its first ecobond, it was revealed that Ecotricity purchased a 71% shareholding in football club (Forest Green Rovers) at a cost of £695,000. Dale Vince is the company's main Director and only shareholder, who is now Chairman of the football club.
2). In the year to 30th April 2011 Ecotricity also made Directors' loans of £496,719 at 0% interest. The company's cost of capital as evidenced by the ecobond one launch is 7 to 7.5%. Thus while Ecotricity Group Limited have not declared a dividend, and whilst there is no correlation between the loan and the ecobond, there has been signficant advantage to Dale and Kate Vince from the company this year over and above their Director's emoluments of £148,875.
While we are not suggesting that the proceeds from Ecobond one and Ecobond two will be used for anything other than the purpose outlined in their offer documents, nor are they being used to fund the football club, it is possible to say that out of the comany's free cashflow available in 2011 Ecotricity Group Ltd have spent £1,191,000 on non core activities. Our concern is that after ecobond two Ecotricity will have borrowed £20m direct from the public. Banks are very able to look after themselves in any lending relationship and would have in place covenants to protect themselves in the event that a company's positions deteriorates. Investors in the ecobond two are not in such a position and as the offer document states are not covered under the Financial Services Compensation scheme, or by the Financial Services Ombudsmen.
This bond offer is allowed in the current legal framework and Ecotricity Group Ltd is able to market directly to the man on the street, as have King of Shaves (2009 - £5m), Hotel Chocolat (£3.7m in 2010) and John Lewis (£50m in 2011). At Worldwise Investor we feel that when a company raises money from the public directly it should be evident at Companies House that there are sufficient checks and balances in place to help protect the interests of the bond holder. The Ecotricity Group Ltd offer raises concerns in this area.
Ecotricity are pitching to an investor base who want to help renewables and so just like the first ecobond launch this offer is likely to fill. 2010 has been recognised as a poor year for wind and even with revenues down and overheads up profit before interest and tax still was 1.6 times interest due.
“Investors are well advised to take note of the contract being offered by Ecotricity and the level of evident corporate governance,” warns Mark Hoskin. “It is these issues which make it difficult for Worldwise Investor to stand behind this offering, because if things go wrong with Ecotricity Group Ltd in the future, the ecobond investors do not have much protection, or anyone looking after their interests. Individuals need to consider these issues in evaluating whether or not to invest in this issue and how much risk it is worth taking for a 6% to 6.5% return.”
Worldwise Investor suggests that any company which makes a similar direct corporate bond offering makes the following changes in their approach to the retail market:
- Any company making a direct offer to the public, should introduce an extra level of corporate governance in its processes prior to issuing bonds. This should include the appointment of non-related Directors at Companies House and non-executive Directors to the Board of the Group company, who are specifically mandated to be responsible to bond holders to ensure that the company remains in a position to pay back the unsecured loans it raises.
- The terms of the loan cannot preclude an investor selling his, or her, interest in the bond to a third party at any time in the process. A small change to legislation could allow companies to keep their costs down and protect investor interests in this regard.
Article published on website http://www.worldwiseinvestor.com/news/article/176/Ecotricity-wins---but-do-investors
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Notes to Editors
About Worldwise Investor
Worldwise Investor provides investors, intermediaries and fund managers with a single point of reference for investment performance relative to stock markets, information, news, thought leadership and commentary.
The website provides performance information for over 130 investment funds available to UK investors which are either categorised into the following themes: environmental, multi-thematic, water, clean energy, agriculture, forestry and carbon, or have ethical screens.
Worldwiseinvestor.com has been developed by Holden & Partners and has involved the partnership of a number of investment houses including Cheviot Asset Management, Pictet Asset Management, Henderson Global Investors, Schroders and Ecclesiastical Investment Management.
Mark Hoskin, Managing Partner at Holden & Partners
Mark Hoskin is Managing Partner at Holden & Partners, which own and operate www.worldwiseInvestor.com. He graduated with a History degree from Keble College, Oxford and went on to become a Chartered Accountant with Price Waterhouse. He cofounded Holden & Partners in 2003 and is now a Certified Financial Planner and Chartered Financial Planner.
He has advised clients for over 10 years and specialises in investment. His clients range from charities to private clients. He is a keen advocate of thematic investment, producing Holden & Partners last Guide to Climate Change Investment in 2010 and has featured on TV, radio and in the national newspapers on this subject.
Holden & Partners
Holden & Partners are a fee based Chartered Financial Planners who advise clients with investable assets over £100,000. The firm is not ideologically driven, but believes that thematic investment funds are an important contributor to managing investment solutions.
Holden & Partners believe strongly in ensuring clients structure their investments to meet needs and personal preferences focusing particularly on income requirements now and in the future. In that context tax and pension planning is a major consideration. The investment mix subject to clients’ attitude to risk typically includes alternative asset classes to equities and bonds. As an example this includes direct commercial property investment and private equity style investment, which often benefit from tax relief and focus on solutions to environmental challenges.
Holden & Partners are based in London with 7 advisers looking after over 500 clients with assets in excess of £200m. We are very keen to welcome new clients and also other advisers.
Worldwise Partner Quotes about Worldwise Investor
“What I find exciting about this,” says Brigid Benson of The Gaeia Partnership, “are the regular news updates and email feeds from one source which put environmental and ethical investing on a par with other financial communications. This will help investors and advisers to factor these issues into their investment planning to a greater extent than they do today.”
“We are supporting Worldwiseinvestor.com because it helps put our funds into a market context, while giving investors and IFAs control over the information they receive and need, to do their job effectively.” Paul Gaston, Pictet Asset Management.
“We are excited at the prospect of having a better communication channel with investors and advisers and hope that this initiative will be supported by all Investment Funds in the thematic arena to make this a sustainable venture going forward.” - Claudia Quiroz, Fund Manager of the Cheviot Climate Assets fund at Cheviot Asset Management.
Holden & Partners is the trading name for Peter R T Holden & Partners, a firm registered with the Financial Services Authority (number 446291).